Olam International Limited

OCBC on 22 June 2012

Olam International Limited (Olam) has announced that its CFO Krishnan Ravi Kumar has resigned to pursue a new career outside the Agri-commodity sector. Shekhar Anantharaman will be moving into a new and enhanced role as Executive Director – Finance and Business, where he will lead the group’s overall strategy and new business development activities and also oversee the corporate finance & accounts, and investor relations. We do not see the resignation as having a material impact on its daily operations as Shekhar is also a veteran in Olam, having spent 20 years there. Meanwhile, we continue to believe that the fundamental picture remains unchanged – the share price could continue to remain volatile in view of the ongoing issues in Europe and also sluggish economic growth in China. Maintain HOLD with S$1.86 fair value.

Resignation of CFO
Olam International Limited (Olam) has announced that its CFO Krishnan Ravi Kumar has resigned to pursue a new career outside the Agri-commodity sector. Ravi has led the corporate finance and treasury function for Olam for nearly 20 years. Meanwhile, Shekhar Anantharaman will be moving into a new and enhanced role as Executive Director – Finance and Business, where he will lead the group’s overall strategy and new business development activities and also oversee the corporate finance & accounts, and investor relations.

Profit-taking on news
Following the announcement of the news, Olam saw a 5.4% fall in its share price yesterday. However, we do not see the resignation as having a material impact on its daily operations as Shekhar is also a veteran in Olam, having spent 20 years there. As such, we believe that the resignation news is probably just an excuse to take profit on the stock’s recent jump of 23% over the last two weeks.

Share buyback in progress
Speaking of the recent rally, it is likely due to the announcement of the company’s share buyback program. As a recap, Olam commenced its share buyback program on 8 Jun, where it can buy up to 10% of its issued share capital, or 244.2m shares, at a maximum price of 105% of the average closing price of the last five market days at the time of acquisition. As of 19 Jun, Olam has bought back some 21m shares.

Neutral on buyback
While share buybacks generally reflect the company’s confidence in its prospects, we are somewhat neutral in this instance, given the company’s high net gearing ratio of 2.2x (end Mar); book value per share (S$1.03) is also way below the current price. Meanwhile, we continue to believe that the fundamental picture remains unchanged – the share price could continue to remain volatile in view of the ongoing issues in Europe and also sluggish economic growth in China. Maintain HOLD with S$1.86 fair value.