Armed with strong profitability, the initial public offering (IPO) of Olam Group's subsidiary Olam Food Ingredients (OFI) is expected to be valued at around $8 billion to $14 billion, says UOB Kay Hian Research analyst Llelleythan Tan in an unrated report.
This is after excluding $5 billion of net debt, assuming a 12x-17x 2021 EV/EBITDA multiple based on global peers’ average. These estimates are lower than the reported valuation of GBP13 billion published by Bloomberg on Feb 23, Tan notes.
OFI is slated to list in the second quarter of 2022, with a concurrent primary listing in London and secondary listing in Singapore.
In 2021, OFI posted impressive 18.8% y-o-y revenue and 16.8% EBIT growths as overall volumes increased 13.3% y-o-y. Driven by larger capacity expansion, acquisitions and product acquisitions, the ingredients and solutions segment grew its volume and revenue by 27%, while EBIT only grew 10%, affected by higher inflation costs and supply chain disruptions in the US.
Post-OFI IPO, Olam will continue to explore various options for the remaining businesses, specifically Olam Agri which contributes around half of the group’s EBIT, says Tan. Options currently being explored include the introduction of strategic minority partners or a potential IPO and demerger of Olam Agri.
“Compared to the current market cap of $6.6 billion, these strategic options could unlock huge value with OFI’s IPO alone to provide around 100% upside, according to Bloomberg consensus.”
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Tan points out that Olam’s food security solutions could appeal to sovereign wealth funds and giant food companies. Given the company’s unique ability to secure food supply from its established food sourcing ability, Olam could appear as an attractive investment for sovereign wealth funds and giant food companies that are seeking to ensure food security.
“The Covid-19 pandemic caused high demand for food, rising transportation costs and disrupted supply chains. According to the United Nations, global food prices have risen 20% y-o-y as of Feb 22 and roughly 70 million to 161 million more people faced hunger in 2020 than in 2019.
“Furthermore, Ukraine-Russian geopolitical tensions have further driven up global food prices as both countries account for 14% of global wheat supply, 19% of world’s barley and 4% of maize. Ukraine also accounts for 52% of the world’s sunflower oil export market while Russia is the lead producer of fertiliser. As the conflict rages on, both countries have started limiting global exports, driving demand away to alternative producers such as Olam,” says Tan.
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After the strong set of 2021 results with 179.4% y-o-y PATMI growth, Olam’s management guided a positive outlook for 2022 as the industry continues to recover and experience a favourable demand-supply imbalance amidst supply chain disruptions, barring unforeseen circumstances.
“Also, Olam’s exposure to Ukraine and Russia is less than 2%-3% of overall annual revenue,” says Tan.
As at 3.28pm, shares in Olam are trading 2 cents higher or 1.16% up at $1.74.
Photo: Olam
