2 reasons why Olam International investors should take caution

Despite EBITDA growth across all segments.

Olam International grew its core profit by 28% yoy to S$42.3m in 1QFY14, slightly beating expectations, but DBS Vickers cautioned that investors that "we would like to monitor its earnings delivery and sustainability of cash flow improvement for another quarter or two before turning positive on the counter."

Still, management insisted on a positive outlook ahead, claiming that while operating environment remains challenging, Olam is expected to see earnings growth stemming from previous investments.

Net gearing, which stayed at 1.93x as of end Sept, will be kept below its 2x ceiling. Olam generated positive free cash flow to firm (FCFF) of S$46m (vs deficit of S$707m in 1Q13) this quarter, said DBS.

"Further unlocking value of past investments, slower capex pace and higher operating cash flow should keep its positive FCFF in check," said DBS.

"The recently announced sale and leaseback of Australoia Almond Orchards is expected to free up A$200m cash and generate one-time post tax capital gain of A$45m when finalised by 3Q14," it added.