Olam comes under fire again

Muddy Waters says it's not changing the old ways.

Muddy Waters (MW) has just issued a new report on Olam International, titling its “Not Changing the Old Ways” following the release of its FY13 results.

The report again raised issues over transparency and corporate governance, as well as remaining skeptical if Olam will operate differently in the future; this given that there have been no changes to Olam’s board since MW’s initial report.

According to Carey Wong, analyst at OCBC Investment Research Gabon project comes under fire again In particular, the viability of the Gabon fertilizer project was called into question, where MW believed that Tata Chemical (TCL) is highly unlikely to participate in the project.

Wong notes that during the results briefing, Olam stated that its relationship with TCL is “still strong” but added that they are “still discussing and have not reached closing conditions”. MW now recommends that Olam “fall on the sword” and terminate the project, despite spending significant money on dredging.

Financial results

According to DBS Vickers analyst Ho Pei Hwa, Olam’s FYJune13 core profit missed market consensus estimates by 23% as taxes were much higher than expected. Excluding the one-off S$12.8m tax on sale of assets, the effective tax rate of 19.1% was also higher than guidance of 12-15%, which management attributes to tax adjustment for underprovided tax in the first few quarters and higher earnings from high tax jurisdiction countries in 4Q.

Excluding biological gains of S$96.3m and exceptionals of S$10.3m, net profit was flat y-o-y at S$256m despite 22% growth in revenue. On a positive note, DBS said that net gearing drifted to below 2x at 1.93x as of end-June. Olam declared a final DPS of 4 Scts.

Ho said that the outlook for Olam remains challenging with weak commodity prices and macro uncertainties