Towards Financial Freedom
Olam - Awaiting full Muddy Waters report
Olam's share price has fallen sharply following the negative comments made by Muddy Waters. Based on the press reports and without a full Muddy Waters report, the arguments against Olam are not new issues and have been considered by financial experts following Olam closely. We therefore see no major concern. The recent share price decline has made Olam more attractive as a long term investment. We maintain Buy with an unchanged 3-stage DCF valuation of S$2.56.
The media reported that Carson Block of Muddy Waters had made some negative comments relating to Olam. Olam' s response is that its accounts are subject to audits by Ernst & Young, and the audits are in accordance with accounting standards.
One of the issues relate to recognition of biological assets. Olam said that an annual stock take is made for all commodities. Ernst & Young, the auditor, selects the valuers, and not Olam, which reflects the independence of the valuers. For 1QFY13, if biological gains were not included, Olam would still have recorded YoY flat earnings.
There were investors' concerns on whether the negative comments made by Muddy Waters could affect the ability of Olam to borrow more from banks. This is given Olam's net gearing of 2x (although the adjusted gearing- factoring in marketable inventories - is 0.57x). Olam's response was that there is sufficient funding for the next 15-18 months, and hence there is no concern. In a hypothetical scenario of Olam not being able to raise sufficient debt to execute its strategy in the longer term, Olam said that they could adopt a more asset-light strategy if necessary.
The media reported that Carson Block of Muddy Waters had made some negative comments relating to Olam. Olam' s response is that its accounts are subject to audits by Ernst & Young, and the audits are in accordance with accounting standards.
One of the issues relate to recognition of biological assets. Olam said that an annual stock take is made for all commodities. Ernst & Young, the auditor, selects the valuers, and not Olam, which reflects the independence of the valuers. For 1QFY13, if biological gains were not included, Olam would still have recorded YoY flat earnings.
There were investors' concerns on whether the negative comments made by Muddy Waters could affect the ability of Olam to borrow more from banks. This is given Olam's net gearing of 2x (although the adjusted gearing- factoring in marketable inventories - is 0.57x). Olam's response was that there is sufficient funding for the next 15-18 months, and hence there is no concern. In a hypothetical scenario of Olam not being able to raise sufficient debt to execute its strategy in the longer term, Olam said that they could adopt a more asset-light strategy if necessary.
Source: OSK
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
