Muddy Waters' insolvency call is a stretch: analyst

Here are 4 impacts on Olam.

Macquarie Securities commented that research firm Muddy Waters' recent call for insolvency is a 'stretch,' but stated that it should be admitted that Olam's transformation projects are taking longer than expected. 

Here are the 4 impacts Macquarie cited:

1. Muddy Waters (MW) highlighted a concern that has also been building on our side, which is that the pace of earnings contribution from Olam’s transformation projects has been slower than expected (at least for us).

2. Many moving parts. Olam’s New Businesses, as a group, had missed our expectations for FY12. Olam has since indicated that earnings inflection from these projects would only come in FY14. MW discovered that one key project was put on indefinite hold.

That was news to us, but has since been confirmed by Olam. Finally, the key Gabon urea project has slipped by one more year.

3. Cumulatively, these factors cause us to both push out and lower the earnings ramp associated with the transformation plan. We now also see Olam’s capital spreads opening by FY16-17, versus FY14-15 previously.

4. Our revised earnings estimates are 20-25% below consensus for the next two years. We foresee a long and grinding re-setting process for consensus. We think the market will favour shorter term valuation metrics against such a backdrop.