Olam Offers Greater Clarity On Acquisitions

More follow up on Olam - Muddy Waters

DJ MARKET TALK: Market May Remain Cautious On Olam Shares - OCBC

Despite Olam's comprehensive rebuttal of short-seller Muddy Waters' critical report, the market could continue to take a cautious approach to its shares, OCBC says. It expects investors to give Olam's financial reports and corporate developments greater scrutiny. "This may also lead to investors adopting a less 'risk on' approach in terms of valuation for the company." It cuts its fair value to S$1.44 from S$1.80 based on 10X FY13 EPS from 12.5X previously. It keeps a Hold call. "While we may still see some near-term volatility surrounding Olam's share price as the market weighs in on the allegations and rebuttals, value may start to emerge around S$1.23 (FY13F NTA)." The stock is up 3.7% at S$1.555. (Muddy Waters issued a report accusing the commodities trader of a litany of failures, ranging from incompetence to malfeasance; Olam calls the allegations "false and misleading" and said it intends to vigorously defend itself.

DJ MARKET TALK: Olam +3.3%; Short-Covering Emerging -Dealer

Olam is up 3.3% at S$1.55 in strong volume, with S$37.8 million worth of shares changing hands, as buyers start returning to the stock after the company issued its rebuttal of short seller Muddy Waters' report. "It's quite a strong recovery," says Justin Harper, market strategist at IG Markets Singapore. "It's what we expected after hitting the S$1.50 level." A dealer notes there is short-covering in the stock, but adds "I'm not sure how much of the volume is short-covering. We won't know until the end of the day." But he says, "I'm standing on the sidelines" on the stock. "If it were catching a falling knife, you'd still see a stock after two to three years," he says, but adds, if there's something "wrong" with Olam, it could be suspended long term. In a report, CIMB notes a takeaway from the Olam briefing was that short interest had declined marginally, but remained high. Orderbook quotes suggest the stock will continue to hover around current levels. (Muddy Waters issued a report accusing the commodities trader of a litany of failures, ranging from incompetence to malfeasance; Olam calls the allegations "false and misleading" and said it intends to vigorously defend itself.

DJ MARKET TALK: Olam Offers Greater Clarity On Acquisitions - CIMB

CIMB upgrades Olam to Neutral from Trading Sell, saying the stock has valuation support, with the worst of the Muddy Waters saga likely over. "Olam has rebuffed Muddy Waters' allegations in a detailed 45-page response. In our view, the explanations were satisfactory and should clear any misunderstanding caused by Muddy Waters' accusations," it says. "This saga could have arisen from a misinterpretation of Olam's financials, much of which has since been clarified. Perhaps a positive takeaway from this saga is greater clarity into its acquisitions, details of which were previously scant. The group has shared qualitative and quantitative insights into its acquisitions, including Crown Flour Mills, Queensland Cotton, SK Foods, NZFSU and the Gabon urea fertilizer project. A number of them have shown improved operating metrics since being acquired." It keeps a S$1.59 target price. It notes sentiment could remain subdued as investors remain cautious. "We would turn positive when the stock falls closer to its September 2012 book value of S$1.35." The stock is up 3.3% at S$1.55. (Muddy Waters issued a report accusing Olam of a litany of failures, ranging from incompetence to malfeasance; Olam calls the allegations "false and misleading" and said it intends to vigorously defend itself.

DJ MARKET TALK: Olam Largely Addresses Muddy Waters Concerns-OSK-DMG

The concerns Muddy Waters raised on Olam have largely been addressed, says OSK-DMG. "Whilst we note that for some issues, the arguments from both parties carry weightage, there is no issue of insolvency and Olam has also been following reporting standards accordingly." Even if debt capital markets freeze in the short term, Olam has no insolvency risks, the house says. "The worst-case scenario is that Olam may need to phase out some investments, which could delay its target achievement of US$1 billion net profit by FY16." It keeps its earnings forecasts unchanged, but cuts its target to S$2.20 from S$2.56 after changing its valuation model to P/E from DCF, keeping a Buy call. "Whilst we remain positive on Olam, there remains the risk that Muddy Waters may raise other issues over the next few weeks, which could potentially trigger another round of selloff of Olam shares." The stock is up 2.7% at S$1.54. (Muddy Waters issued a report accusing the commodities trader of a litany of failures, ranging from incompetence to malfeasance; Olam calls the allegations "false and misleading" and said it intends to vigorously defend itself.