Olam

Olam’s 2Q15 (FYE changed from Jun to Dec) net profit jumped nearly two-fold to $94.7m, as 2Q14 earnings were weighed by exceptional items ($16.7m) and minority interest stakes ($43m). Excluding those, core net profit almost doubled to $95.2m (+96.3%), broadly in line with estimates.

Revenue slumped 16.4% to $4.8b, dragged by lower sales volume of 2.9m MT (-17%) as the commodities trader reduced or discontinued lower margin operations (grains, wood products, cashew processing). This was partly offset by higher prices of some commodities such as cocoa.

EBITDA climbed 6.1% to $285.1m, as EBITDA margin improved 1.2ppt to 5.9%, with three out of the four main segments registering improvements. Leading the gains were food staples and packaged foods (+55.3%), followed by edible nuts, spices and vegetable ingredients (+17.8%), and confectionary and beverage ingredients (+10.2%).

The sole underperfomer was industrial raw materials, which saw EBITDA sliding 38.6% to $55m on lower contributions from its Special Economic Zone in Gabon.

Net finance costs fell 3.2% to $101.1m as the group had repaid higher cost and longer tenor loans back in 2014.

Taxes spiked 39.7% to $35.2m as its geographical mix of business shifted towards higher tax jurisdictions.

Based on adjusted net debt of $3.17b, net gearing eased slightly to 0.72x from 0.75x in Mar’15 (Dec’14: 0.7x).

At $1.79, Olam trades at 12.2x forward P/E and 1.1x P/B. The street has 3 Buy and 8 Hold ratings on the counter with a consensus TP of $2.23.