Liquidity concerns plague Olam on back of extremely lacklustre trading volumes

It might even be kicked out of the STI.

Agribusiness giant Olam is struggling to fend off investor concerns over its low liquidity.

According to Jefferies equity analyst Abhijit Attavar, Olam's share price has drifted downwards recently on low trading volumes, which has fuelled concerns that it will be kicked out of the benchmark Straits Times Index (STI).

“Following the Temasek open offer, daily traded volumes in OLAM have shrunk from over 10-15m shares/day to less than 300k shares/day. OLAM's shares have drifted down from the offer price of S$2.23 on low liquidity/ institutional interest. We believe the recent drop to below S$2 levels is driven by speculation that it might be excluded from FTSTI,” he wrote.

He noted that Olam’s fundamentals remain robust, although the lack of liquidity in its shares and questions raised on quality of earnings in its peer group have likely led to current investor apathy towards the group.

“In our view, significant further downside from here would be protected by Temasek's ability to take the company private if needed. Risk-reward, we believe, is therefore well in favour of buying if we see any technical sell-downs due to index exclusion,” he said.