Olam Group - UOB Kay Hian 2022-03-18: Exciting Time With Upcoming IPO Set To Unlock Huge Value & Positive Outlook


Olam Group - Exciting Time With Upcoming IPO Set To Unlock Huge Value & Positive Outlook

  • Olam aims to complete the spin-off of its Ofi Group (OFIGL) subsidiary in the UK, along with a secondary listing on the SGX in 2Q22.
  • OFIGL’s IPO is expected to be valued around S$8.0b-14.0b (S$2.17-3.79 per share), assuming 12-17x EV/EBITDA multiple based on global peers’ average, lower than the valuation of S$23b reported by Bloomberg on 23 Feb 22.
  • Further strategic options could unlock more value, with Olam Agri (OGA) next in line for IPO or demerger.

Unlocking huge shareholder value via spinoff of OFIGL in 2Q22.

  • Olam Group (SGX:VC2) completed the restructuring on 16 Mar 22 via a scheme of arrangement to facilitate the expected 2Q22 UK IPO of Ofi Group (OFIGL) and a secondary listing on the SGX.
  • Armed with strong profitability, OFIGL’s IPO is expected to be valued around S$8.0b-14.0b after excluding S$5b of net debt (S$2.17-3.79 per share), assuming a 12-17x 2021 EV/EBITDA multiple based on global peers’ average according to Bloomberg. These estimates are lower than the reported valuation of £13b (S$23b) published by Bloomberg on 23 Feb 22.
  • Also, post-OFIGL IPO, Olam will continue to explore various options for the remaining businesses, specifically Olam Agri (OGA) which contributes around half of Olam Group’s EBIT. Options currently being explored include the introduction of strategic minority partners or a potential IPO and demerger of OGA.

Olam's 2021 results indicated a strong recovery from COVID-19.

  • Olam reported robust 2021 International had fully exited most of its de-prioritised assets earmarked for divestment and is expected to divest the remaining seven assets by end-24.

Olam’s food security solutions could appeal to sovereign wealth funds and giant food companies.

  • Given Olam’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 70m-161m 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.

Positive outlook for 2022.

  • After the strong set of 2021 results with 179.4% y-o-y PATMI growth, Olam's management has noted that the company’s outlook for 2022 remains positive 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.
  • See

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-18
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000