Olam is a good buy

According to RBS, Olam is a great buy at current levels. Sounds a good deal to me, especially with the current correction.

Olam International, a leading supply chain firm, is shifting its business model into more midstream and upstream operations. This should position it well to benefit from the commodity uptrend and deliver higher operational profitability and stronger cash generation. We initiate with a Buy and a S$4.05 target price.

*Shift in business model critical for Olam's future profitability Olam's shift to more midstream and upstream businesses

*Long-term uptrend on commodity prices underpins Olam's future Olam's strategic shift should position it well to benefit from the long-term uptrend in agricultural commodity prices

*Quality investments
The vast majority of the 20 or so investments Olam has made since 2007 have been delivering returns on capital invested in excess of management's initial expectations. This should bode well for the future M&A activity Olam still needs to carry out to meet its targets.

*Risks to our valuation
Our fair value and target price of S$4.05 per share are based on a three-stage DCF valuation methodology. The greatest risk to our valuation and recommendation is that of the global cost of debt spiking up.