Olam's free cash flow targets derailed by massive acquisition spree

Forex fluctuations and commodity prices are key threats.

Olam managed to deliver its second consecutive quarter of positive free cash flow in Q1, but DBS Vickers Securities notes that its free cash flow targets will be derailed by its recent acquisitions.

In particular, the US$1.3b acquisition of ADM Cocoa which is due in the third quarter will delay Olam achieving its positive free cash flow targets.

Apart from this, Olam's growth prospects are also clouded by currency fluctuations and volatility in commodity prices.

"While we see higher earnings in the medium term, with the drag on FY15F earnings due to currency volatility and
delay in achievement of its positive free cash flow targets on the recently announced acquisition of ADM Cocoa, we
see limited re-rating catalyst in the near term," stated the report.