Olam posted a muted start to FY15. While 1QFY15 revenue eased 0.5% YoY to S$4298.6m, EBITDA fell 11.9% to S$219.4m; Olam attributed the fall to adverse price movement in its hazelnuts and dairy business, coupled with execution challenges in upstream dairy. Reported net profit edged 3.1% lower to S$44.3m; but operational PATMI slipped 29.4% to S$32.2m. As a whole, revenue met 20% of our FY15 forecast, but operational PATMI only met 7%, which we deem to be below our expectations (first quarter earnings typically make up about 11% of full-year). We are paring our FY15F earnings by 4% to account for the weaker 1Q showing; this also reduces our fair value from S$2.38 to S$2.30 (still based on 12.5x FY15F EPS). However, due to the fall in share price over the last quarter, we think that valuations are not as stretched as before. Hence we upgrade our call to HOLD.
Muted start to FY15
Olam posted a muted start to FY15. While 1QFY15 revenue eased 0.5% YoY to S$4298.6m, EBITDA fell 11.9% to S$219.4m, it attributed the fall to adverse price movement in its hazelnuts and dairy business, coupled with execution challenges in upstream dairy. Reported net profit edged 3.1% lower to S$44.3m; but operational PATMI slipped 29.4% to S$32.2m. As a whole, revenue met 20% of our FY15 forecast, but operational PATMI only met 7%, which we deem to be below our expectations (first quarter earnings typically make up about 11% of full-year).
Weaker Food Staples & Packaged Food
By segments, Edible Nuts did better, aided by strong performance from upstream Almonds, US Peanuts; but it did see some weather-related impact on its Hazelnuts business, which may continue into 2QFY15. Confectionary business was fairly stable, and likewise for Industrial Raw Materials. But Food Staples & Packaged Food turned in a weaker showing (revenue, volume and EBITDA all slipped), impacted by sharply lower milk prices and yields in Uruguay dairy farming. And management notes that the execution challenges in upstream dairy could continue into 2QFY15.
More divestments expected in 2Q15
Going forward, Olam will continue to make the divestments as outlined in its FY14-16 Strategy Plan. Three announced initiatives, which are expected to be completed in 2QFY15, are likely to release further cash of ~S$313.1m, generate a (one-time) P&L gain of S$22.4m, and add S$118.8m directly to its capital reserves. Olam still has a target of being FCFF positive, although 1QFY15 FCFF was a negative S$54.6m (FCFE was a large S$160.3m negative due to the net interest paid).
Easing FV to S$2.30; upgrade to HOLD
We are paring our FY15F earnings by 4% to account for the weaker 1Q showing; this also reduces our fair value from S$2.38 to S$2.30 (still based on 12.5x FY15F EPS). However, due to the fall in share price over the last quarter, we think that valuations are not as stretched as before. Hence we upgrade our call to HOLD.
Olam posted a muted start to FY15. While 1QFY15 revenue eased 0.5% YoY to S$4298.6m, EBITDA fell 11.9% to S$219.4m, it attributed the fall to adverse price movement in its hazelnuts and dairy business, coupled with execution challenges in upstream dairy. Reported net profit edged 3.1% lower to S$44.3m; but operational PATMI slipped 29.4% to S$32.2m. As a whole, revenue met 20% of our FY15 forecast, but operational PATMI only met 7%, which we deem to be below our expectations (first quarter earnings typically make up about 11% of full-year).
Weaker Food Staples & Packaged Food
By segments, Edible Nuts did better, aided by strong performance from upstream Almonds, US Peanuts; but it did see some weather-related impact on its Hazelnuts business, which may continue into 2QFY15. Confectionary business was fairly stable, and likewise for Industrial Raw Materials. But Food Staples & Packaged Food turned in a weaker showing (revenue, volume and EBITDA all slipped), impacted by sharply lower milk prices and yields in Uruguay dairy farming. And management notes that the execution challenges in upstream dairy could continue into 2QFY15.
More divestments expected in 2Q15
Going forward, Olam will continue to make the divestments as outlined in its FY14-16 Strategy Plan. Three announced initiatives, which are expected to be completed in 2QFY15, are likely to release further cash of ~S$313.1m, generate a (one-time) P&L gain of S$22.4m, and add S$118.8m directly to its capital reserves. Olam still has a target of being FCFF positive, although 1QFY15 FCFF was a negative S$54.6m (FCFE was a large S$160.3m negative due to the net interest paid).
Easing FV to S$2.30; upgrade to HOLD
We are paring our FY15F earnings by 4% to account for the weaker 1Q showing; this also reduces our fair value from S$2.38 to S$2.30 (still based on 12.5x FY15F EPS). However, due to the fall in share price over the last quarter, we think that valuations are not as stretched as before. Hence we upgrade our call to HOLD.
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