Hot stock: Olam up as much as 10% as H2 profit rises 15.4% to S$230.8 million

SHARES of mainboard-listed Olam Group climbed as much as 10 per cent on Wednesday (Feb 28) after the agri-business group posted a 15.4 per cent rise in net profit for its second half ended Dec 31, 2023.

The counter reached a high of S$0.99 on Wednesday morning, up S$0.09 as at 9.12 am. By 10.22 am, the counter was trading 7.2 per cent or S$0.065 higher at S$0.965, with 3.1 million shares changing hands.

Olam’s net profit for the six months ended December 2023 stood at S$230.8 million, up from S$200 million a year earlier. This translated to earnings per share of S$0.0567 for the half year, up from S$0.0478 the previous year.

The group attributed the stronger earnings to a rise in earnings before interest and tax (Ebit) growth, as well as lower exceptional losses. These helped to offset an increase in net finance costs of S$156 million. Revenue for the period dropped 10.8 per cent to S$23.6 billion.

Sales volume grew 11.8 per cent for the period, and Ebit was up 19.3 per cent to S$952.3 million with strong growth for both its ofi and Olam Agri units at 15.4 per cent and 67.9 per cent respectively.

Olam’s board proposed a final dividend of S$0.04 per share, taking the full-year dividend to S$0.07 per share. If approved at the company’s annual general meeting on Apr 25, the dividend will be paid out to shareholders on May 13 after the record date on May 6. 

For the full year, net profit declined by 55.7 per cent to S$278.7 million. This was because operational profit growth was offset by the significant increase of S$401.9 million in net finance costs on higher interest rates; lower owners’ share of profit from Olam Agri due to the sale of the 35.4 per cent stake equivalent to S$177.8 million in minority interests; and higher net exceptional loss of S$179.4 million compared with S$152.4 million in FY2022.

Speaking at a briefing on Wednesday to discuss the group’s latest financial results, Olam’s top executives said the company remains committed to the overhaul of its operations – a move that was first announced in January 2020. 

At the time, the company said it would rejig its diverse portfolio into a trio of distinct business units, two of which include its food ingredients unit ofi and Olam Agri, which consists of grains and animal feed, edible oils, rice, cotton and commodity financial services businesses. The third unit is parent company Olam Group. 

Following the carve-out, the group’s end goal was to list these two units on different exchanges. It was intended that ofi would list on the London Stock Exchange along with a secondary listing on the Singapore Exchange. Olam Agri would list concurrently in Singapore and Saudi Arabia. 

Olam’s chief executive Sunny Verghese said that so far, the reorganisation has helped the respective leadership teams of both ofi and Olam Agri “grow these businesses significantly”. 

“We are very clear that the decisions that we are taking to undergo this massive reorganisation, and radical restructuring and transformation of the business, will pay significant dividends in terms of creating a lot of incremental value for our continuing shareholders,” he added. 

However, Verghese acknowledged that there have been delays in the listings – on the back of macroeconomic troubles such as the Russia-Ukraine war, which resulted in a freeze on listings in capital. 

He said ofi’s initial public offering (IPO) in London was “estimated to be a very significant” listing. 

Meanwhile for Olam Agri, he noted that Saudi Arabia’s regulatory regime of its capital markets – specifically to allow both the listing of foreign companies and the issuance of Saudi depository receipts – have made it more challenging for the company to list. 

Olam Agri will be the first foreign company to list there and issue depository receipts, Verghese said. “For (Olam), listing in Saudi Arabia and Singapore is very important for maximising the full potential value of the Olam Agri business,” he added. 

The Olam Agri listing will not take place in H1 this year, as management had previously guided, because the regulatory framework in Saudi Arabia is still being finalised. But Verghese said the two listings are the end-goal for the company, and it will “remain flexible” in the sequence of the IPOs. 

He also said Olam will explore other strategic options to unlock value alongside the listings, and will consider internal and external factors such as prevailing market conditions and global macroeconomic developments. He did not elaborate on the specifics of what these strategic options might entail. 

“We are not putting all our eggs in one basket,” said Verghese, in reference to the listings as a way for the company to unlock value. “But in the route to IPOs, we might do other things as well to meet our valuation objectives.”

The group also announced a share buyback programme for up to a maximum of 5 per cent of total outstanding shares, “within the current mandate and renewal of this mandate at the upcoming annual general meeting in April 2024”.

Verghese said the group will buy back these shares on the open market. He added that the board’s view is that the company is undervalued. These buybacks will be funded by Olam’s existing cash resources, he said. 

The group also announced a share buyback programme for up to a maximum of 5 per cent of total outstanding shares, “within the current mandate and renewal of this mandate at the upcoming annual general meeting in April 2024”.

Shares of Olam closed at S$0.96 on Wednesday on a cum-dividend basis, up 6.7 per cent or S$0.06.