Olam

Olam: UBS reiterates Sell with TP $2.23. Says valuation remains rich at 1.2x FY15e P/B, against an expected ROE of only 10%. Notes Olam is making progress on its 2013 strategy review to formulate and adopt a re-balanced approach to growth and cash flow generation. But doubts remain. Olam did not achieve its target of turning FCF positive by FY14, even after excluding net interest paid of $476m, and including divestment proceeds of $309m. Apart from cash flow issues, UBS believes another key uncertainty lies in Olam's ability to deliver on earnings growth, given its significant historical investments. Notes EBITDA/interest coverage was flat from FY12-14, with returns still a considerable distance from Olam's target in FY16, and mgt guiding that we will not see the full potential of its upstream investments until FY19. Even then, this is contingent on successful execution and future commodity prices.