Exciting Time With Upcoming IPO Set to Unlock Huge Value And Positive Outlook
Olam aims to complete the spin-off of its 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 OFIGL’s IPO alone set
to provide around 100% upside.
• Unlocking huge shareholder value via spinoff of OFIGL in 2Q22. Olam Group (Olam)
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. 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 the group’s EBIT. Options currently being
explored include the introduction of strategic minority partners or a potential IPO and
demerger of OGA. Compared to the current market cap of S$6.6b, these strategic options
could unlock huge value with OFIGL’s IPO alone to provide around 100% upside, according
to Bloomberg consensus.
• 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% yoy 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% yoy PATMI
growth, 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.
• 2021 results indicated a strong recovery from COVID-19. Olam reported robust 2021
revenue (+31.2% yoy) and operating PATMI (+41.8% yoy), backed by strong structural
demand as economies start opening up. Higher prices across most of Olam’s products and
commodities along with along with higher overall volumes (+2.3% yoy) for Olam Food
Ingredients (ofi) and OGA (+2.3% yoy) led to higher profitability. Olam declared a final
dividend of S 4.5 cents for a total 2021 dividend of S 8.5 cents (S 7.5 cents in 2020).
• Ofi: Strong volume growth. Accounting for 9.1% of Olam’s overall 2021 volumes, 31.1% of
revenue and 61.5% of EBIT, Ofi posted impressive (+18.8% yoy) revenue and EBIT
(+16.8% yoy) growths as overall volumes increased 13.3% yoy. The ingredients & solutions
segment, driven from larger capacity expansion, acquisitions and product acquisitions, grew
its volume and revenue by 27.0% yoy while EBIT only grew 10.1% yoy. EBIT margins were
affected by higher inflation costs and supply chain disruptions in the US. However, the global
sourcing segment saw weaker volume and revenue growth of +0.8% yoy and +2.1% yoy
respectively, but EBIT surged 23.7% yoy as the segment recovered from the impact of
COVID-19. Management expects costs to normalise in 2022 and investments made in 2021
to start contributing to earnings from 2022 onwards.
• OGA: Record year due to higher selling prices. 2021 revenue (+39.6% yoy) and EBIT
(+51.6% yoy) surged as all three business segments outperformed due to higher overall
prices and demand. For the food & feed segment (origination & merchandising), both
revenue and EBIT was up around 43% each due to higher grains rice and edible oil prices,
while volumes were only up marginally. Similarly, backed by higher prices and increased
market share for its wheat, animal feed and edible oils, Processing & Value-added segment
saw growths in revenue (+30.2% yoy), EBIT (+9.6% yoy) and volumes (4.8% yoy). Fibre,
Agri-industrials & Ag Services segment saw pent-up demand as sales volumes grew 10.7%
yoy, driven largely by pent-up demand for cotton. Revenue increased 30.9% yoy while EBIT
more than trebled as its cotton, rubber and milling businesses experienced a strong recovery
in both selling prices and demand.
• OIL: Exits underway. By end-21, OIL had fully exited most of its de-prioritised assets
earmarked for divestment and is expected to divest the remaining seven assets by end-24.