Olam: DMG tips Olam as its best pick in the supply-chain-management business, as it focuses largely on the resilient food segment, with 89% net contribution. Cotton-price volatility has been a major negative for the supply-chain segment, with developments on India's cotton-export ban, reported to be partially-removed, likely a major cotton-price mover ahead.
House thinks a replay of 2011's cotton drama, which included defaults by both farmers and customers, is unlikely. Note that Olam's shares have underperformed peers recently, whilst this may not be entirely due to the cotton issues, expectations of less volatile cotton prices will help increase investors' interest in Olam. Overall rates Olam at Buy, $2.98 TP and is less bullish on Noble and Glencore due to their greater exposure to the more cyclical industrial commodities business.
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