Sunday, December 2, 2012

Olam vs. Muddy Waters

Thought I would use a quick look during the weekends to run through Muddy's 133 pager report on Olam and summarize it here. The post is merely a run through and does not imply the author is agreeing or attempting to distribute/disseminate the content of the Muddy Waters report.

Points are

  1. Capex/acquisition heavy with poor assets 
    • Crown flour mill (0.9% thin margin, cash burn)
  2. Capex attribution  
    • S$571M less investments that were annnounced
    • S$996.2M of capex were not attributable over the last 4 years
  3. Accounting Issues
    • 62.5% of non cash gains from negative good will from revaluations (SK Foods, tt Timber)
    • Rest from biological gains (I.e you dont sell the trees but change your estimate of its values)
    • Non cash accounting gains account for 37.9% of PAT from 2010 to 2012
  4. Financials 
    • Sept 2012, S$3.75B of debt due in 12 months despite S$1.38B in cash
    • Firm consumed S$2.5B in operating cash flowfrom FY2009 to 1Q2013
    • Significant margin account restatements, one over S$1B in 2008 
    • Significant impact of derivatives revaluation on profits (sensitivity up from S$3.8M to S$12M from 2011 to 2012 despite fall in value of derivatives)
    • Undisclosed account changes (page 35-41 of Muddys report)
    • Low rate of project and investment returns
    • Nigeria export incentives and grant income flows to Olam but is not sustainable
  5. Solvency and liquidity 
    • Refinancing quantum of S$4.6B over next 4Qs
    • FY 2012 has only 3 weeks of operating cash, over S$600M of cash out of S$1.1B are from withdrawals of broker margins. S$445.7M cash are from overdrafts at over 20%
    • Recent quarters saw a withdrawal of cash from margin accounts and mentioned no need to maintain the account as they net off positions daily
  6. War of words 
    • Mentioned Olam was defensive, Olam advised Muddy to go long and work with firm. Muddy declined in a abrasive manner
    • Muddy offered to pay for a debt rating on Olam
    • Olam 45 page rebuttal HERE
Some takeaways 
Most points were previously covered by others including CLSA previously and now further written in depth by Muddy which is well appreciated. 


Hoosier said...

Hi, I came across your blog by chance. I believe I am much older than you and I thought I share my blog with you so that you can get a different perspective on Investment. I am basically a Technical Analyst but believe me when I was about your age, I also do a lot of Fundamental Analysis. I believe a chart reflected ALL THE INFORMATION, publicly available or otherwise so that saves me a lot of time. HAHAHA

I have also talked a bit on Olam,

Dennis The Menace said...

Interesting posts on this blog great information.


Excellent blog nice news stories

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