Olam profit soars but Muddy Waters keeps sell rating

Farm commodities supplier Olam reported a near 20 percent jump in quarterly net profit but US-based short-seller Muddy Waters on Friday maintained its "strong sell" rating on the Singapore company.

Olam said net profit for the October-December period soared 19.9 percent from a year earlier to Sg$154.14 million ($124.30 million), shrugging off recent claims by Muddy Waters that the company faced a high risk of insolvency.

But the short-seller was unimpressed with the results, keeping its "strong sell" rating on Olam shares while noting that some of the firm's debt-to-earnings indicators remained "dangerously high".

For the six months to December, Olam's net profit jumped 21.3 percent to Sg$197.32 million on revenue of Sg$9.60 billion, up 24.3 percent, the company said late Thursday.

Analysts from Malaysian bank CIMB said in a research note that "Olam delivered a decent set of results despite the distraction" by Muddy Waters which warned last year that the company faced a high risk of collapse.

"We are pleased with the overall results of the company," Olam chief executive Sunny Verghese said in a statement.

"We continue to see healthy growth rates in the food category and a recovery in the cotton business within the industrial raw materials segment."

Olam's shares were trading at Sg$1.655 on Friday afternoon, up 1.22 percent from the previous day's close, but still 4.9 percent down from levels before Muddy Waters' allegations were made.

Muddy Waters said it maintained its original thesis, first expressed in November, that Olam risked becoming insolvent because of high debt exposure and questionable accounting practices.

"Olam's main problems worsened in Q2 (second quarter)," Muddy Waters said.

"With Olam's bonds yielding approximately 7.0 percent to 8.0 percent -- which we feel is too low -- Olam's interest burden is not sustainable."

Muddy Waters last year likened Olam to US energy giant Enron, whose dramatic collapse in 2001 was triggered by US government probes into its accounting practices.

Olam angrily denied the allegations and hit back with a defamation suit while getting full support from its second-biggest shareholder, Singapore's powerful state investment firm Temasek Holdings.

Olam sources 44 products -- including cocoa, coffee, cashew, sesame, rice, and cotton -- from 65 countries and supplies them to more than 11,600 customers.

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