Olam

Olam: acquires 100% stake in Kayass Enterprises, a Nigerian dairy and milk company, for US$66.5m. The acquisition will be funded through internal accruals and borrowings and is expected to be earnings accretive from FY14. Olam expects to deliver 20% in EBITDA margin by FY16, with an Equity IRR of 35% on this investment. Olam has completed a number of M&As in Africa, and is building up a packaged food business there with products such as tomato paste, biscuits and noodles. While there is market potential in Africa, given the low income base, investor concerns remain centred on, i) Olam’s ability to execute on and integrate so many M&As in such a short span of time, and ii) the co taking on massive debts to buy new businesses. Separately, The Capital Group pared its stake from 5.017% to 4.885% via the open mkt, shortly after raising its stake from 4.969% to 5.017% in late May. We note the short time span btwn the share transactions is unusual for the typically long term oriented fund mgr. The stock trades at 10.1x P/E. The Street has 18 Buys, 3 Holds and 4 Sells, with recent TP in a wide range btwn $1.40 – 3.05.