Tags: Olam | expanding | strong | results

Olam Expanding On Strong Results

By    |   Wednesday, 30 Nov 2011 05:46 PM

Commodities distributor OLAM International’s (OLAM) competition has been suffering from volatile markets and concerns over sovereign debt. Olam itself has been reporting strong results and focusing on expanding its supply chain in order to satisfy demand in growing markets such as China.

One of the world’s largest suppliers of a handful of major commodities such as cotton and cocoa, Olam has its eye on expanding into in cereals, sugar and palm oil. It successfully beat the odds in its first quarter reporting by announcing a 15 percent year-on-year jump in profits.

Typically, the first quarter is weaker for the company but it managed to mitigate exposure in volatile global cotton markets while increasing business in new areas such as almonds, dairy and timber, though the latter wasn’t as strong as the company had hoped.

High cotton

Olam said it only suffered one default by a U.S. cotton grower this drought-stricken season, a loss already offset during the 2011 fiscal year. Meanwhile, major competitor Noble Group (NOBL) saw its first quarterly loss in 14 years.

The announcement came as Noble made plans to spin off its agricultural unit in an IPO during the first quarter of 2012. The same day, Noble’s CEO announced he was resigning for personal reasons.

In comparison, Olam has things well in order and its founder is the CEO. "Despite weak demand, extreme price volatility and increased counter-party risk, Olam's cotton business was relatively resilient," Goldman Sachs said in a recent report, saying that supply-side defaults were limited, with a diversified supply base and lower exposure (than Noble) to "acreage forward contracts," whereby volumes are yield-dependent.

The company is looking to diversify its supply chain toward what major import markets such as China may need by 2015. The company expects Chinese demand for rice to reach 8 million metric tons by then — the same volume that the world’s largest exporter, Thailand, sells annually — with corn demand as high as 20 million tons.

Shortly after Olam’s stellar first quarter reporting of $26.6 million in net income, DBS reiterated its hold rating on the company and raised its guidance to $1.81 from $1.66.

Olam next reports on or around Feb. 13.

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Commodities distributor OLAM International s (OLAM) competition has been suffering from volatile markets and concerns over sovereign debt. Olam itself has been reporting strong results and focusing on expanding its supply chain in order to satisfy demand in growing markets...
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2011-46-30
Wednesday, 30 Nov 2011 05:46 PM
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