Olam's financial reports now more scrutinized by investors

Investors may adopt a less “risk on” approach.

According to OCBC, Olam International has issued a comprehensive reply to refute Muddy Waters findings, dismissing MW’s allegations as “false and misleading”.

Here's more from OCBC:

In particular, Olam stresses that it faces no risk of insolvency; its financial statements and accounting policies adhere to the Singapore  Financial Reporting Standards; its differentiated strategy is working; and both organic capex and M&A plans are an outcome of conscious and deliberate strategy. 

Management also aims to issue another report to address other issues shortly. After that, it will let its legal team seek recourse against MW and management intends on focus on running its business and executing its long-term plans.

Issues are not new
On the whole, we note that the issues raised by MW are not exactly new, especially those about negative goodwill and fair value gains from biological assets.

As a rule, we strip out all non-cash, non-operating gains/losses when valuing companies under our coverage, not just commodities-related ones.

Meanwhile, MW report also brought about higher level of disclosure from Olam; but management notes that it is unlikely to provide the same level of details in the future, citing competitive reasons.

More scrutiny likely in the future
In any case, the market could still adopt a pretty cautious approach even after this, with investors putting in a greater scrutiny on Olam’s financial reports and corporate developments. We think this may also lead to investors adopting a less “risk on” approach in terms of valuation for the company.