Hi everyone,

How do we purchase bonds ? from banks ? how much is the min qty to purchase ? Thx in advance for your advice. I could not find much information from the net. 

Olam has won an international bid to acquire a cotton gin in the Ouangolo region of Cote d’Ivoire for US$5.0 million. Olam successfully secured the Ouangolo lot which comprises one cotton gin with an annual ginning capacity of 35,000 tonnes of seed cotton and its related infrastructure, as well as a catchment area of nearly 35,000 hectares that can produce up to 20,000 tonnes or 15 per cent of the country’s cotton lint annually. The Ouangolo gin is the only gin with direct access to the 35,000 hectares of cotton farms currently cultivated by some 15,000 farmers in that region.

Report by DMG.

Olam, a leading global supply chain manager with operations in 56 countries, has recorded a historical 3 yr net profit CAGR of 31%. This has come on the back of its very aggressive expansion programme, both organic and inorganic as well as its focused approach to widen margins.

Olam has successfully raised contribution per ton traded. This is evident from all the 4 main segments. For 9MFY08, its gross contribution per ton from confectionery and beverage ingredients was 29% higher than the FY04 level, whilst fibre and wood products recorded a 54% increase over FY04. Olam’s strategy is to source from the farm gates (which allows for certification of organic products, amongst others), as well as to increase market share in its product segments, both of which will widen margins.

Inorganic expansion could drive earnings further. Olam has entered into a JV with Wilmar to form Nauvu, which will invest in palm oil, natural rubber and sugar assets in Africa. The guidance is that Nauvu could generate earnings of US$35m on a steady-state basis, with Olam’s share at US$17.5m. The Queensland Cotton Holdings acquisition may not be earnings accretive in the short term, due to the drought in Australia, but there is huge potential for earnings contribution in the longer term.

Convertible bonds provide funds for more acquisitions ahead. The market was concerned that the recent US$300m convertible bond issue could dilute Olam’s EPS going ahead. We agree that the dilution could range between 6.2% and 8.3%, depending on whether the US$100m upsize option is exercised. We view this fund raising exercise a positive as it provides Olam with additional funds to expand its business.

Our DCF valuation gives a $3.20 target price, which works out to 28x FY09 EPS. Based on the 3-yr historical net profit CAGR of 31%, this yields a PEG of less than 1x. We initiate coverage of Olam with a BUY call.