Olam, Tgt Px Cut : Credit Suisse

● Olam held a conference call on 20 Mar-08 to clarify that its
exposure to futures broker MF Global, which just announced a
US$142 mn write-down last month, was limited to less than 3% of
its hedging activities, and denied news of potential liquidity risk.
● On the call, Olam’s management also addressed concerns on
rising commodity prices stretching working capital requirements,
price volatility affecting margin account balances, and high
inventory levels driven by seasonal peaks in procurement activity.
● While we remain convinced that fundamentals for Olam remain
sound, given its control over its network of 150K-odd suppliers, on
the back of strong structural factors driving demand for agricultural
commodities, valuations should now reflect a view that the
market’s higher-risk premium is unlikely to dissipate anytime soon.
● Our new DCF-based S$2.75 target price (down from S$4.10)
assumes less aggressive medium-term growth rates of 14% (from
16%), on an 11% discount rate (from 10%). Taking the view that
the bad news is largely discounted in the price, we see attractive
upside potential and hence maintain our OUTPERFORM rating.