Olam

Olam: Citi holds conference call to address investors’ concerns post 9MFY12 results. Recall Olam’s stock px has declined 9% post results on 15 May, with key issues being weaker demand for timber, issues with cotton sourcing, and margin weakness for its industrial segment. Mgt noted the worst in cotton px volatility would likely be done by 4Q12, as reduced volumes in cotton sourced by Olam this year suggests that Olam’s (and the industry’s) cotton woes should now have peaked. Nevertheless, farmers holding out for higher prices for the remainder quarter of this season’s harvest will likely weigh on profit contribution from the industrial pdts segment in 4Q12, which will delay recognition into FY13. On debt buy-backs, Olam noted it is watching the trading yields on its debt carefully, but believes that it is better off investing in operational projects vs debt buybacks at close to par values. Its current adjusted net gearing at 0.4x is favorable when compared against the 0.7x at end FY08 during the global financial crisis. Citi notes Olam’s P/E is now at similar lows to those seen during the GFC. Sees the current sell off as somewhat harsh given that i) Olam’s food related divisions (80% of total volume) continue to grow in both volume and margins, and ii) credit conditions were much more severe during the previous GFC than current conditions. The house reiterates Buy with TP $3.10. In overnight news, the Capital Group raised its stake in Olam back to >5% (from 4.97% to 4.02%), via open market transactions. This is its first purchase since its repeated paring down of Olam stock over the past few wks.