Olam

Olam: Despite reporting 2Q11 results which were inline, share price could see some negative sentiment, after grp announced that merger talks with Louis Dreyfus has ended. On separate note, Nomura noted that grp, may need to sell shares to fund expansion plans, as Co. is fast running out of war chest due to aggressive capital expansion plans and dilution is a possibility in near term….

2Q11 results saw Rev at $4.1b, +47.3%YoY and +64.2%QoQ, while Net Profit excluding exceptional gains (Negative goodwill) at $112.2m, +65.6%YoY and +26.4%QoQ. Overall Sales Volume grew +10.5% YoY and +46.8%QoQ, backed with rising commodity prices with several agricultural commodities reaching historical highs....

Gross Margins continued to inch higher, at 20.6% vs 19.3%YoY and 20.3%QoQ, with all five business segments, namely Edible Nuts, Spices & Beans, Confectionery & Beverage Ingredients, FoodStaples & Packaged Foods, Industrial Raw Materials and Commodity Financial Services, contributing positively to growth in Net Contributions (NC), +42.9%, as overall per tonne margin improved 29.4% at $133....

Going forward, grp remains confident and committed to the execution of its long term strategic growth plans, remains positive about its prospects for the FY11. We note that result brings 1H11 rev to US$6.5b, +15.6%YoY and Net Profit excluding exceptional gains at $141.9m, +63.5%YoY, on track to meet full yr consensus estimates, while Sales Volume at 3.9m Metric Tonne, +15.6%YoY....

At current price, grp trades at an annualized 22x FY11E PE (excluding revaluation gains) vs historical average of 24x and global peers of 26x, and remains a key beneficiary to global increase in commodity prices. Deutsche maintains Buy call with $3.60 TP, Morgan Stanley maintains Buy Call with $3.78 TP and Goldman Sachs maintain Neutral Call with $3.30 TP.