Tuesday, December 18, 2012
Olam: Morgan Stanley downgrades to Equalweight from Overweight, slashes TP to $1.55 from $2.50. Says higher funding costs to alter growth trajectory. Notes Olam’s trading business depends on short-term funding while its value chain expansion plans hinge on favorable capital market access. Believes a key fallout of recent events is higher cost of capital for Olam, which is likely to stunt its previously forecast growth trajectory. Highlights, Olam’s bond yields remain high, and its recent rights issue is expensive. With an expected increase in cost of capital, thinks inorganic growth plans will need to be cut significantly, while some greenfield projects could be delayed or phased out. Cuts F2013-15E reported net income by 16-43%, driven by lower capex and higher interest costs.