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SINGAPORE (Nov 16): DBS Group Research is maintaining its “hold” recommendation for Olam International, as the stock is expected to trade within its range for the near term.
DBS’ analyst Mervin Song noted that the group’s small free float of 20% and its high gearing compared to other listed companies in Singapore would lead investors to continue to “shun the stock”.
Song has a price target of $1.94 for Olam, and added that Olam’s US$1.2billion acquisition of ADM Cocoa has yet to deliver consistent positive free cash flow and earnings growth.
In the medium term, however, Song believes there could be greater upside on the stock. “Currently, Olam has $4.9 billion worth of immature assets which, on maturity, could generate an additional $0.6 billion to $1.1 billion of EBITDA,” he said. “This is on top of any earnings from new investment opportunities that Olam undertakes with its new partner, Mitsubishi Corporation, which took a 20% interest in the group.”
Shares in Olam are trading 1 cent lower at $2.02 on Wednesday.