Olam

Olam delivered a stellar set of 1QFY14 results which was at the high end of estimates, as the group reported net profit of $45.6m (+6% y/y, -20% q/q). Stripping out fair value gains, core profit before tax was at $47.7m (+26%). Revenue came in at $4.3b (-8% y/y, -34% q/q), as overall volume in 1QFY14 was maintained at 3.67m MT, with all business segments recording volume growth with the exception of its Food Staples & Packaged Foods, affected by lower volumes from the Grains and Rice businesses. Lower commodity prices was the primary cause for the lower y/y revenue, although this was offset by a rise in EBITDA margins to 5.7% vs 4.7%, due to improvement from its expansion into upstream and midstream activities, as well as the organic growth from the core supply chain business. The Edible Nuts, Spices & Vegetable Ingredients division was the outperformer, with the almond business contributing to growth in segment volumes, revenues and EBITDA, while the tomato processing business turned around as inventory levels normalised and selling prices recovered. Going forward, Olam notes that the company’s diversified portfolio with established leadership positions in many of its segments, places it well to navigate the uncertainties and volatility in global commodities markets, and remains on track to deliver both earnings growth and free cash flow for FY14. Separately, Olam announced the sale-and-leaseback of its Australian Almond assets and sale of Dirranbandi Cotton gin for A$220.0m, which will result in a reduction in debt and contribution to cash flow, and see the group post a One-time Net post tax gain of ~A$45.0m. Balance sheet remains fair, with Olam’s net gearing at 1.93x, which is below the group’s 2.0x ceiling, while Free Cash Flow for the quarter displayed significant improvement of $46m vs -$706.8m y/y. At the current price, Olam trades at a forward 12x P/E versus its peers simple average of 16x. Latest broker ratings as follows: Nomura maintains Buy with TP $2.00 CIMB maintains Neutral with TP $1.54 CS maintains Neutral with TP $1.50 HSBC maintains Neutral with TP $1.64 Macquarie maintains Neutral with TP $1.45 UOB Kay Hian maintains Hold with TP $1.60