Another deal announced for OLAM

AM Fraser

Olam - Acquires spice assets Olam has acquired select spice assets and businesses of Indian spice exporter Vallabhdas Kanji Limited (VKL) for US$18 million. It expects these operations to bring in additional revenue and cost synergies for the group.


Credit Suisse - Outperform

Resilient business model
Olam’s business model is resilient against both economic and commodity cycles, with 80-85% of its commodity portfolio food-based, and about 70% of net contribution from supply chain activities, which are minimally impacted by price volatility. Near-term catalysts include financial closure and the award of turnkey contract for its US$1.3 bn Gabon fertilizer project, and further out, the announcement of more earnings-accretive deals. Currently, the floods in Thailand have not had any significant impact on Olam’s rice operations, as well as on international prices, with much of the rice produced in Thailand going into domestic consumption and into government warehouses given the prices declared by the government recently. In addition, stocks in India are overflowing because of a good production year and the government has lifted the ban on exports so there would be enough surplus to offset any shortfall from Thailand. Our chat with Olam suggests it does not expect any issues procuring the volumes they are targeting this year.

Another deal announced
Olam separately announced that it has acquired the bulk spices and private label assets and businesses of Vallabhdas Kanji Limited (VKL) for a total consideration of US$18 mn. The assets include VKL’s spice processing facility in Cochin, India, its pepper grinding factory in Vietnam and its sales and distribution operations in North America. This deal broadens Olam’s product breadth into chilli and turmeric, and more importantly, accelerates its entry into the private label segment of the value chain, which is in line with its growth strategy.

Valuations compelling
If history continues to be an accurate guide and consumer staples continues to lead the rally in the Straits Times Index, we prefer Olam over Noble. At current levels, Olam still trades at one std dev below its historical average P/E multiple. Olam’s price-to-book at 2.15x is closer to the 2008-09 lows of 2x. For Noble, the current price-to-book of 1.59x is 5x the 2008-09 lows of 0.37x