Olam Intl   

Ramping up its capex

Does anyone know why despite the news of acquistions of UB is out, it still drop?  Is it sell on news?  Any kind soul can share the view and can share the future of Olam?  Tks in advance.

 

It has taken over United Arab Emirates' Rudra International, which sources agricultural products, for US$2.35 million. The principal activities of Rudra are those of sourcing, processing and supply chain management of agricultural products.

 

It surged as much as 11.7% to a record high of $3.34, on talk a broking stocking may soon raise the price target for the stock to as much as $3.70.



A dealer from a regional brokerage said the speculation has fuelled buying interest among investors.

 

Cotton prices may climb this year because harvests are falling in the U.S., the world's biggest exporter, and demand from China is growing, said Mother Earth Investment AG's Roland Jansen, whose resources fund gained 28% last year.



U.S. cotton plantations are dwindling amid competition for acreage from corn used to make ethanol, according to London- based Fortis Commodity Derivatives. Key cotton-growing areas may have cut harvests this year due to unfavorable weather, according to Liechtenstein-based Jansen, who manages $100 million.



"The probability is pretty high that the Mississippi delta, where cotton is grown, will experience this summer a La Nina effect, diminishing crops,'' Jansen, CEO of Mother Earth, said in an e-mailed message from Chicago. ``Cotton is a good investment and we are long.''



Prices may ``easily'' climb as high as 70 US cents a pound, said Jansen. Prices have dropped 5.1% this year.



Cotton, a word derived from the Arabic "al qutun," accounts for 40% of global fibre production, according to Deutsche Bank AG. Prices have slumped 18% in the past 3 years.



La Nina, the converse of El Nino, is a global weather phenomenon characterized by below-average sea-surface temperatures. In the U.S., it typically creates drier summers in the southwest, drier autumns in the central plains and drier winters in the southeast. Mississippi was the third-largest cotton-growing state in 2005 to 2006, producing 2.15 million bales, according to the U.S. Department of Agriculture.



Falling prices are prompting U.S. farmers to turn to more profitable crops such as corn and soybeans. In Louisiana, projected cotton plantings are down 35% year-on-year for 2007, in Virginia 31 percent and in Mississippi 24 percent, according to the National Cotton Council of America.



Spring plantings have dropped 14 percent from 2006, with a probable final 2007 crop of 20.66 million bales, compared with 21.73 million last year, according to Fortis.



On Feb. 3, the International Cotton Advisory Committee forecast world cotton production will remain stable at 25.3 million tons in 2007-2008, while global consumption will increase 2 percent to 26.5 million tons.



Cotton price gains may also be fueled by demand from China, the world's biggest consumer, where use has outstripped supply for the past eight years, according to Sudakshina Unnikrishnan, an analyst at Barclays Capital in London.



The China Cotton Association expects the country to produce 6.41 million tons this crop year, resulting in a 4-million ton import requirement. By 2010, it expects China's production to increase to 7 million tons. The China National Textile and Apparel industry group has forecast consumption will increase to at least 12.5 million tons by then, and that the country will need to import 50% of its raw cotton by 2010.

 

SHORT THIS BABY TOO

 

May be topping out... be cautious

 

Cotton production in Australia, the world's 4th-largest exporter of the fibre, may fall to its lowest level in 23 years because of drought, the U.S. Foreign Agricultural Service said.



Output may fall to 1 million bales, or 227,000 metric tons, in the marketing year started Aug. 1, down from a previous forecast of 1.278 million bales, agricultural specialist Mike Darby said in a report released today. That's 62% less than last year's output of 2.64 million bales.



"Severe drought has seen some crops abandoned while other crops received lower than optimal irrigation water," Canberra- based Darby wrote. "Lower production will likely result in lower ending stocks and lower exports."



The nation's cotton production has slumped after years of successive drought dried up dams and rivers and reduced the amount of water available for irrigation. Plantings may rise 33% in fiscal 2008 should Australia receive average seasonal conditions, the government forecaster said last week.



Today's forecast compares with the 250,000 metric ton estimate by the Australian Bureau of Agricultural and Resource Economics, the government forecaster.



Exports may fall to 458,000 metric tons, or 2 million bales, Darby wrote. That compares with 2.87 million a year earlier.



The Foreign Agricultural Service is a branch of the U.S. Department of Agriculture. Reports by its attaches can differ from the department's official data.

 

Queensland Cotton Holdings said it faces a difficult year ahead because of the severe drought.



This news is nothing new as it cut its profit forecast for this year before.



Richard Haire, CEO of Queensland Cotton, said the Australian firm faces a difficult year, while Olam warned that QCH faces a loss in the 2007-08 financial year due to drought. The two companies held a joint media briefing on Thursday.



"We see a significant loss in 2008" for QCH, said Sunny Verghese, Olam's CEO. "We're taking an option on the rain" he added, referring to Australia's long-running drought.



But Verghese said that if Olam's bid for Queensland Cotton goes ahead, he expects it to make a positive contribution to Olam's earnings with effect from 2008-09.



"We expect future earnings of Queensland Cotton to be around A$13 million in FY09, assuming Australia's whole cotton crop production to be around 3.5 million bales in a normal rainfall year," Verghese added.



Olam has a joint venture with Chinese cotton producer Chinatex. If the deal with Queensland Cotton goes ahead, Olam said it would create the world's third-largest cotton supplier. Olam is the world's fifth-largest cotton player, while Chinatex ranks seventh, and Queensland Cotton tenth, according to the International Cotton Advisory Committee.



"Queensland Cotton's strong presence in the premium segment would complement Olam's current product range; with this acquisition, we'll be like a cotton supermarket," Jagdish Parihar, Olam's MD for cotton and oilseeds, told the briefing.



Parihar said Australia has been the "missing piece" for Olam, which has operations in 44 countries.



"The expansion into Australia is significant, given it is one of the world's largest producers of premium cotton," said Parihar, adding that QCH would also offer Olam greater exposure into the U.S. and Brazil markets.

 

The market is now waiting to see whether Queensland Cotton's major shareholder, French commodities firm Louis Dreyfus, or another company would make a counter offer. Dreyfus raised its stake in QCH in October to 19.9% from 14.9%. Its Australian office declined comment.



If the deal is completed, the firm will be the third-largest in the world in terms of bales and tonnes of cotton marketed, behind global leaders Louis Dreyfuss and Cargill, one investment banker said.



Queensland Cotton buys and sells cotton and processes it and provides other services to the cotton industry. It also trades pulse crops.



Olam said it would use QCH infrastructure and experience to expand its Australian presence into other agricultural businesses, such as wheat, nuts and pulses.



"We believe that with this platform, through the Queensland Cotton vehicle we will be able to explore these opportunities," CEO Sunny George Verghese told reporters.

 

It surged to a record high of $3.06 on news that the commodity trader has bid up to A$142 million for Australia's Queensland Cotton Holdings to create the world's 3rd-largest cotto company.



CIMB analyst Glenford Tan has raised the target price to $3.16 from $2.96 as the acquisition would open up a new market for the firm, and would "fit strategically with a recent joint venture with China".



Olam said it would offer A$4.75 a share for QCH, and would increase its offer to A$5.05 a share if it won acceptances for 90% of the company, allowing it to compulsorily acquire the outstanding shares.



The bid, which represented a premium of 52% to QCH's trading price over the past month, was backed by Queensland Cotton's directors.



The all-cash offer will be funded internally and with debt.



Olam said in a statement the combined business would have substantial sourcing operations in Africa, Australia, Brazil, CIS (Russia and the former Soviet republics), India, China and the United States. Olam said it operates in all key cotton exporting countries except Australia, which is the world's 5th-largest cotton exporter.



"The Olam-Queensland Cotton combination, with its comprehensive product range and unmatched origin presence across Africa, the CIS, North and South America and Australia, would have a unique competitive position in the global cotton industry," the company said.



It said it would consider expanding the Australian operations into other commodities that are traded by the Olam group, such as expanding the pulse business of Queensland Cotton.



The deal requires a minimum 5% acceptance by shareholders, and also needs regulatory approval including Australia's Foreign Investment Review Board and U.S. Hart-Scott-Rodino approvals.



Last month, Queensland Cotton cut its forecast net operating profit for the current year, partly because of the long-running drought. Its shares closed on Tuesday at A$3.35, having held broadly steady so far in 2007. ($1=A$1.29)

 

It reported a 25% rise in quarterly profit due to strong growth across its four main business divisions. Olam's four main trading businesses are: edible nuts, spices and beans; confectionery and beverage ingredients; food staples and packaged foods; and fibre and wood products.



It said it was confident of its prospects in the second half of its financial year, which ends on June 30, but gave no detailed outlook.

 

ralphguy, the price usually moves up a few days before the news or report is out. Insiders already know the discussions beforehand. After the news / report is out, it may move up some more.



The plan is to list the joint ventures in Singapore three to five years down the road. For the oilseed joint venture, Olam plans to invest US$13.5 million for a 35 per cent stake in Chinatex Grains and Oil I/E Corporation (CTGO). Meanwhile, CTGO will expand its own crushing capacity to two million tonnes a year, from 500,000 tonnes, in the next three years. That will cost US$40 million-US$50 million. Of the US$75 million capital expenditure over  the next three years, a third will be funded through equity and the rest through debt. Mr Verghese sees CTGO's net profit more than doubling in the next three to four years.



As for the cotton business, a 50:50 joint venture will be set up to trade and process domestic cotton in China. Chinatex is China's biggest cotton player, handling 318,000 tonnes of domestic and imported cotton last year. The business generated revenue of US$500 million and a net profit of US$13 million. Olam will be Chinatex's preferred supplier for at least 30% of Chinatex's annual imports of 200,000 tonnes of cotton.



The joint ventures will contribute to Olam's bottom-line immediately once they are in place. However, the estimated combined contribution of US$2 million is not significant relative to Olam's full-year earnings of about US$55 million last financial year.

 

hav been holding for quite a while,waiting for it to go to tp 256, then i will sell.

 

ralphguy, I attribute it to effect of DBSV's report. It has been proven again and again whenever it  a buy call with a TP upgrade, the stock will move that very morning. Today it issued a buy call with TP $2.56 (from 2.20).

Olam International
More boost for growth

Ø     Story: Olam announced that they plan to form two joint-ventures in
the Oilseeds (soybean) and cotton businesses in China, with Chinatex, a PRC
State-Owned Enterprise.

Ø     Point: We view this announcement as positive as it a) accelerates the
Group's plans to move into a new product adjacency i.e. soybeans; b) grows
its already sizeable cotton business in China; and c) helps the Group
further penetrate the Chinese market. We have raised our FY08 forecasts by
3.5% to take into account this news and introduced new FY09 estimates.

Ø     Relevance: Olam's share price has lagged the market over the last 3 months and has not moved since we cut it to a HOLD at S$2.10.  However, with the Group about to announce 1H07 results and with potentially more acquisitions to act as catalysts for the stock to re-rate further, we upgrade Olam to a BUY, with a 12-month target price of S$2.56, as we roll over our 25x valuation multiple to FY08/FY09 earnings.

 

singaporegal, you are good.. sudden price movement today.....



but why?

 

It has formed two joint ventures in China for oilseed and cotton business with an investment of US$13.5 million and said it expects the ventures to be profitable from the first year.

 

Could the William %R & RSI be upward bias? But accumulation/distribution is down instead.

any idea?

 

Signals are a little mixed for Olam now.

But Bollinger Bands are tight again, indicating sudden price movement. Hard to tell direction.

 

Bollinger bands are really tight on Olam... meaning that sudden price change is likely to occur soon.

I think the price movement could be downwards. The Acc/Dist and Chaikin seem to have a slight southern bias.

 

Rose to a 52-week high amid hopes that it will report a strong set of first quarter to September results next week, dealers said.



"We are expecting earnings in Olam's first quarter to show a 20-25%bottom line growth on 15-20% top line growth, largely driven by increased volumes," DBS Vickers said in a note.