Olam’s near-term outlook still grainy even after animal feeds industry entry

The El Niño phenomenon is drying up earnings.

The agri-business giant has once again enlarged its coasts, now entering the global animal feed industry with a recent Nigerian deal.

However, analysts from OCBC say this move might take a little time to kick in, considering the sputtering economic growth taking its toll on Olam.

OCBC adds that this is not to mention the potential catastrophic supply disruption that the current El Niño phenomenon can bring to agricultural produce.

“As such, we opt to remain conservative and not accrue any benefit from the animal feed expansion into our model yet. Also note that Olam did not specify the scale of investment that it needs to put in place; this also suggests that the roll-out may take some time to achieve,” OCBC adds.

Despite this, OCBC explains that it still considers the move a good one.

“The global animal feed industry is a large and growing part of the agri-commodity complex with attractive returns and a strong growth outlook (Olam expects the commercial feed market to grow at >10% CAGR over the next five years), particularly in emerging markets, we believe that it does make sense for Olam to pursue such a move,” OCBC said.