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08-06-2011, 07:29 AM
Business Times - 08 Jun 2011
Olam stock rattled by fund-raising exercise
Its shares fall by as much as 6% intra-day, on concern of earnings per share dilution
By FELDA CHAY
OLAM International shares took a beating yesterday on news that the commodities group has launched a $740 million equity fund-raising exercise.
Fears that the move will lead to earnings per share (EPS) dilution sent the stock reeling in opening trades. The knee-jerk reaction saw the counter plummet as much as 6 per cent, or 17 cents, to hit an intra-day low of $2.66.
It then recouped some lost ground to close the day at $2.73, still 3.5 per cent, or 10 cents, down.
It was one of the most actively traded stocks for the day, with 45.7 million shares changing hands.
Olam said yesterday that it sold 94.41 million shares to institutional investors at $2.61 a share and, subject to shareholders' approval, will sell another 94.41 million to Temasek Holdings at the same price - an 8.4 per cent discount from Olam's volume weighted average price (VWAP) last Friday, the final day it traded before the announcement was made.
The company will also sell 97.29 million shares to existing shareholders on the basis of one share for every 22 shares held at $2.56 a share. This is a 9.8 per discount to last Friday's VWAP. The three tranches will together raise $740 million.
A number of analysts who had issued reports on the commodities group yesterday retained their calls on the stock, though some cut their price targets to reflect lower earnings per share expectations.
CIMB Research noted that the issue will enlarge Olam's current share base by 13.4 per cent, translating into a 'significant dilution' of EPS.
The pricing of the share issue is also at a 'significant' discount, wrote CIMB in a research report. 'If we were to refer to its one-week VWAP prior to the trading halt, the placement actually represents larger 11.8-13.1 per cent discounts,' said CIMB.
Still, it recognised that 'a stronger balance sheet after equity-raising should help the group execute its medium-term growth strategy'.
'Beyond the immediate knee-jerk reaction, we see catalysts from the announcement of earnings accretive acquisitions as well as continued earnings growth.'
It cut its EPS estimates for Olam from fiscal year 2011 to 2013, and lowered its target price for Olam to $3.08 from $3.34. But CIMB kept its 'neutral' call on the company.
Nomura Equity Research believes that the amount raised should be sufficient to meet the company's growth plans for the next two to three years.
'We had calculated that Olam needed about US$380 million in equity funding for asset investments already announced, and with the help of this issuance, further leverage and incremental earnings, they could now easily fund about $2.4 billion in new capex (capital expenditure) without risk of any further dilution, in our view,' said Nomura.
It added that Olam's US$1.5 billion Gabon project to build a fertiliser plant and palm plantation is likely to be 'highly value accretive'.
'Potential dilution had been an overhang on the stock for the last few months, and we think the market will now start focusing on core earnings delivery, which has been strong.
'We reiterate Olam as a top pick,' said Nomura.
It reduced its price target for Olam to $3.60 from $4, and continues to think the company is a 'buy'.
Olam stock rattled by fund-raising exercise
Its shares fall by as much as 6% intra-day, on concern of earnings per share dilution
By FELDA CHAY
OLAM International shares took a beating yesterday on news that the commodities group has launched a $740 million equity fund-raising exercise.
Fears that the move will lead to earnings per share (EPS) dilution sent the stock reeling in opening trades. The knee-jerk reaction saw the counter plummet as much as 6 per cent, or 17 cents, to hit an intra-day low of $2.66.
It then recouped some lost ground to close the day at $2.73, still 3.5 per cent, or 10 cents, down.
It was one of the most actively traded stocks for the day, with 45.7 million shares changing hands.
Olam said yesterday that it sold 94.41 million shares to institutional investors at $2.61 a share and, subject to shareholders' approval, will sell another 94.41 million to Temasek Holdings at the same price - an 8.4 per cent discount from Olam's volume weighted average price (VWAP) last Friday, the final day it traded before the announcement was made.
The company will also sell 97.29 million shares to existing shareholders on the basis of one share for every 22 shares held at $2.56 a share. This is a 9.8 per discount to last Friday's VWAP. The three tranches will together raise $740 million.
A number of analysts who had issued reports on the commodities group yesterday retained their calls on the stock, though some cut their price targets to reflect lower earnings per share expectations.
CIMB Research noted that the issue will enlarge Olam's current share base by 13.4 per cent, translating into a 'significant dilution' of EPS.
The pricing of the share issue is also at a 'significant' discount, wrote CIMB in a research report. 'If we were to refer to its one-week VWAP prior to the trading halt, the placement actually represents larger 11.8-13.1 per cent discounts,' said CIMB.
Still, it recognised that 'a stronger balance sheet after equity-raising should help the group execute its medium-term growth strategy'.
'Beyond the immediate knee-jerk reaction, we see catalysts from the announcement of earnings accretive acquisitions as well as continued earnings growth.'
It cut its EPS estimates for Olam from fiscal year 2011 to 2013, and lowered its target price for Olam to $3.08 from $3.34. But CIMB kept its 'neutral' call on the company.
Nomura Equity Research believes that the amount raised should be sufficient to meet the company's growth plans for the next two to three years.
'We had calculated that Olam needed about US$380 million in equity funding for asset investments already announced, and with the help of this issuance, further leverage and incremental earnings, they could now easily fund about $2.4 billion in new capex (capital expenditure) without risk of any further dilution, in our view,' said Nomura.
It added that Olam's US$1.5 billion Gabon project to build a fertiliser plant and palm plantation is likely to be 'highly value accretive'.
'Potential dilution had been an overhang on the stock for the last few months, and we think the market will now start focusing on core earnings delivery, which has been strong.
'We reiterate Olam as a top pick,' said Nomura.
It reduced its price target for Olam to $3.60 from $4, and continues to think the company is a 'buy'.
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