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Analysts Updates: Olam International To Be 3rd Largest Cocoa Processor
Aspire, Hot Picks | 24 December 2014
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By: Raymond Leung
Articles (142) Profile

Analysts updates on Olam International

Last week, Olam International (Olam) acquired global cocoa company, Archer Daniels Midland (ADM) for US$ 1.3 billion. This will boost Olam’s market share as a cocoa processor to 16 percent of the global market making it the third largest cocoa processor in the world.

ADM is a global integrated cocoa player as a supplier and processor of cocoa liquor, powder and butter. The group comprises of eight factories, ten warehouses, two business and four innovation centres along with deZaan (retail chocolate brand) and its worldwide marketing network that spreads across 16 countries and 2,150 plus franchises.

The assets and networks from ADM will add on to Olam’s current assets and networks which will enable Olam to become a global integrated cocoa player. This will allow Olam to be involved with cocoa straight from the plantation and down to the end products that retail consumers purchase. In other words, Olam now owns the entire supply chain.

This comes as prices for cocoa continues to remain strong despite the fall of other commodities such as oil. The acquisition of ADM will allow Olam to increase its exposure in this increasingly prominent industry.

Given its market share and account projections, the cocoa department is expected to be accretive in cash flow and profits from FY2016. This should translate to a 10 to 14 percent increase in Olam’s profit.

Analysts from DBS Vickers Research reiterated their “Buy” call with a higher target price of $3.15. They cited the current low valuation of Olam based on its 30 percent three year earnings CAGR and uplift in its medium term cash flow as its main reasons for rerating.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

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Olam Int'l  1.830 +0.020 +1.10%   
Business: Co is engaged in sourcing, processing, packaging and merchandising agricultural products. [FY18 Turnover] Food staples & packaged foods (47.6%), confectionery & beverage ingredients (23.4%), industrial raw materials, infrastructure & logistics (14.9%), edible nuts & spices (14.1%).

Insight: May-19, 1Q19 revenue rose 16.7% due to increased t... Read More

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