Olam Group - Ripe for Harvest

Introduction

Olam Group is a holding company in the final stages of a multi-year break-up. Today it owns three things: 100% of ofi (Olam Food Ingredients), a global ingredients business processing cocoa, coffee, dairy, nuts and spices for food and beverage manufacturers; a residual 64.57% stake in Olam Agri, a grains, oilseeds, cotton, rubber and animal feed trading-and-processing operation currently being sold to Saudi Arabia’s SALIC for an implied 100% equity valuation of US$4.0 billion; and the Remaining Olam Group, a grab-bag of gestating and de-prioritised assets including palm oil and rubber in Gabon, packaged foods in Africa, a Russian farming operation, and a ports-and-logistics stake (ARISE PORT & LOGISTICS) that is itself being divested. The economic engine that matters going forward is ofi, which posted S$1.1 billion in EBIT for FY2025 on S$28.5 billion in revenue, making it a top-three global player in cocoa and coffee ingredients alongside Barry Callebaut and Cargill. ofi’s stickiness comes from its integrated supply chain—it originates raw materials directly from farmers in over 40 countries, processes them mid-stream, and co-creates customised ingredient solutions for multinational customers like Nestlé and Mondelez. This is not a pure commodity trader.

The Conundrum

Currently, at a traded price of S$0.845, Olam Group is being valued at a market capitalisation of S$3.19 billion. And what caught my attention is the pending sale of Olam Agri to Saudi Agricultural and Livestock Investment Company (SALIC). In the agreement to sell the remaining 64.57% of Olam Agri to SALIC, the sale is struck at a price of US$4 billion valuation, with daily accretion in price from 1 Jun 2025 to the sale closing date. As of the last update, the sale is pending approval from the last regulator, after which the transaction can be closed.

Assuming the transaction is closed by 31 Mar 2026, and if SALIC immediately exercises the call option to complete the full purchase on the same day, the total proceeds from the transaction adds up to US$2.776 billion for both Tranche 1 and Tranche 2. This is equivalent to S$3.55 billion converted at a USDSGD rate of 1.28. If SALIC does not exercise the call immediately, the Tranche 2 sale allows for Olam to exercise the put on the last 19.99% in 3 years’ time at 6% IRR which would further increase the total proceeds Olam Group would receive. I believe you would recognise the conundrum now. If the minimum proceeds from the sale is S$3.55 billion, why is Olam Group trading at S$3.19 billion market cap? SALIC’s mission is to contribute to the food security of the nation, in line with the Saudi Vision 2030. With the ongoing war in the middle east, this need is likely seen to be one with an even higher urgency. And with one regulator’s approval remaining, it is hard to peg a probability of success for the transaction that is low enough to justify a S$3.19 billion market cap.

The timeline of the reorganisation

In January 2020, Olam Group (known as Olam International back then) announced a reorganisation of its business to unlock long term value. The company will create two new coherent operating groups, Olam Global Agriculture (OGA) and Olam Food Ingredients (OFI), that targets key consumer trends and market opportunities. This plan would pave the way for potential carve-out and capital raising options, including IPO listing for OFI and OGA. Olam International will act as an accelerator to nurture gestating businesses to full potential, including some of the businesses in the Remaining Olam Group that we see today.

In March 2022, the company provided an update to the reorganisation plans. A sale of 35.43% of Olam Agri to SALIC was announced at a valuation of US$3.5 billion. An IPO in London for ofi was pursued, with a concurrent listing in Singapore. That was however scuttled by market conditions due to invasion of Ukraine. In the 2022 Annual Report, it was also mentioned that “Following the SALIC transaction, we intend to seek a primary listing for Olam Agri on the mainboard of the Singapore Exchange, while exploring a concurrent listing on the Saudi Exchange, subject to market conditions.”

In April 2025, a further update to what has now become a 5-year endeavour to unlock value in the Group was released, post announcement of the sale of the remaining 64.57% of Olam Agri to SALIC. The sale of Olam Agri at an increased valuation of US$4 billion would release significant cash proceeds to Olam Group. Tranche 1 was expected to be completed by Q4 2025. The objectives to be achieved post completion of the transaction are as follows.

From the above, it’s not hard to see why Olam Group is sporting depressed valuations. The prior plans were mostly derailed or delayed, in part possibly due to Covid and the Ukraine war. These would likely result in a loss of confidence in announced plans, driving probability of the sale of Olam Agri lower, since prior plans to list Olam Agri and Olam Food Ingredients did not realise.

Back to fundamentals

Let’s go through some thought exercises on what happens when the sale to SALIC goes through.

On the balance sheet side, we would be expecting to see a recognition of the gains from the sale similar to what happened in 2022 when the first sale of 35.43% happened (You can look through the Annual Report to look for the S$1.2 billion gains). In the latest full year results, the company has split out the Olam Agri business as part of discontinued business.

The S$1.842 billion equity is representing 100% of OA, and thus a sale of 64.57% of the company at S$3.55 billion proceeds (according to calculations above) should mean that the balance sheet will be strengthened by S$2.36 billion in gains. Equity and reserves as of 31 Dec 2025 stands at S$7.00 billion and thus the increase should increase equity to S$9.36 billion. This would make the current market capitalisation stand at a mere 0.34 P/B ratio. That is exceedingly cheap for a business like Olam Group. Take for example Barry Callebaut, which has a very similar business model to ofi, albeit a narrower product focus on Cocoa. Barry Callebaut current trades at 2.88 P/B ratio at 1378 CHF (7.56 billion CHF market cap) as of Aug 2025’s results and as of 25 Mar 2026’s closing price.

How about implications to profit and losses? As per indicated by the objectives, the first step is to de-lever Remaining Olam Group and make it debt free. The presentation slides on 14 Aug 2025 have made the work easier for us by spelling out the expected interest savings from this move which is S$214 million in interest annually.

We do know that the amount of interest expense paid by the continuing business (excluding Olam Agri) is a staggering S$1.16 billion in fiscal year 2025.

It’s good to know that a significant chunk of the interest expense will be removed due to paying down of debt in the Remaining Olam Group. But how did the interest expense get to such an eye watering amount in the first place? This would bring us to the business model that Olam Group operates on for ofi.

The build-up of outstanding debt

Olam Food Ingredients (ofi) is made up of 2 business segments. The first being Global Sourcing, which includes farming, origination and sourcing of cocoa, coffee, spices, nuts and dairy. Second being Ingredients and Solutions, which provides customers with value added processing from single ingredient to finished products.  Throughout this process, Olam Group is able to pass through the pricing to customers but have to hold on to valuable inventory while it either moves through the supply chain or is undergoing processing. This requires working capital, which spiked recently in year 2024 and required Olam Group to ramp up borrowings. And that is why the interest expense has gone up significantly with borrowings. The spike in working capital was brought about by a rally in Cocoa and Coffee prices.

Source: tradingeconomics.com

In Olam Group’s annual reports, it does not break down the revenue figures related to each product in ofi (cocoa, coffee, nuts, spices and dairy). However, looking at the price trend of cocoa, it can be deduced that much of the increase in 2024’s working capital comes from this product. And as the price comes down to a normalised level nearer to 2023, we will be expecting a significant inflow of cash with the sale of the higher priced inventory in 1H2026.

Global Sourcing

Ingredients and Solutions

Directly comparing end 2025 figures with 2023 figures, the Invested Capital of ofi can come down as much as $3.9 billion, which translates to a huge reduction in borrowing and interest expense. A lower gearing ratio would likely improve the credit quality of the firm and enable financing at better terms as well. The exact reduction of invested capital would much depend on the actual product mix so we shall see in due course.

The reduction of commodity prices is a double-edged sword though. At constant profit margins, the business earns more when prices are high, and thus a lower price would correspondingly result in a lower EBIT.

Comparing EBIT from 2023 to 2025, you would observe that 2023’s EBIT is $241m less than 2025’s. The current finance cost is circa 7.5% on outstanding borrowings and lease liabilities. One would assume that the company would repay loans that are much higher in costs and thus bring down the borrowing cost. Let’s assume that the borrowing costs stays the same and 7.5% on $3.9 billion reduction in loans would bring about another $292m in finance cost savings on top of the savings from paying down the Remaining of Olam Group’s loans.

Sum of parts

What we are interested in now is how much is the business worth as a sum of parts, especially when these parts are going to be gradually sold off or listed in the public markets. We know that the proceeds from Olam Agri sale to SALIC will be worth circa S$3.55 billion if the deal closes on 31 Mar and SALIC exercises the right to buy Tranche 2 immediately. How about ofi?

The most recent financial statements have started to segregate Olam Agri as discontinued business due to the pending transaction with SALIC. This gives us valuable insight into what Olam Group would look like post OA transaction. However, the statement does not break down the segregation between ofi and Remaining Olam Group as much as I would like. An estimation of ofi’s performance and balance sheet would require some estimations based on their disclosures so far. One main assumption is the utilisation of US$2 billion to de-lever ORG and make it debt free. Please have a look at the calculations underlying the valuations below and let me know if I have made any mistakes. I believe in the power of crowdsourcing!

We have mentioned prior that Barry Callebaut is a very similar competitor to ofi with a focus on Cocoa and finished chocolate products. The revenue breakdown between what Barry Callebaut terms as “Global Cocoa” (sourced ingredient) and “Global Chocolate” (finished product) is 31% / 69%, while ofi’s equivalent (Global Sourcing  / Ingredients and Solutions) across the 5 product categories is 39%/61%. Even though the portion for the value-added section is lower, it has been gradually increasing over the years. Even though the exact breakdown in product segments in ofi is not known, the increase in working capital as a result of Cocoa and Coffee price spikes indicates a rather large and meaningful exposure to these 2 products. The green cells above are based off Barry Callebaut’s valuation metrics, which I have shown the workings for to guide the next section where we try to value ofi via a basket of companies.

The companies we will proxy ofi’s valuation off will be Barry Callebaut (Cocoa and Chocolate), JDE Peet (Coffee) and Kerry Group (Food Technology/Ingredients). The weighting of each company in the valuation would depend on an individual’s perception of ofi. My perceived weightings are as follows.

I have directly used the weighted average of the metrics above to arrive at a valuation for ofi. Readers can freely give their own discounts or premiums to it to arrive at what they feel to be correct. It’s plain to see that Barry Callebaut has gone through quite a run up recently, giving it a richer valuation. However, I see it as investors pricing in a normalisation of cocoa prices that would raise earnings for Barry Callebaut with lower borrowing costs. And that has yet to be priced in for Olam Group.

My focus has always been buying with a margin of safety. There is a range of values above that you can reference. Regardless of the valuation that is chosen, or how much a discount is given to ofi, a sum of parts calculation would place the current market capitalisation of Olam Group at a significant discount to fair value of OA + ofi + ORG.

Risks

The US-Israel-Iran war is probably the greatest risk to the realisation of value for ofi. First and foremost is the impact to the closing of the SALIC deal to buy Olam Agri. The Saudi Arabia PIF could pull back on funding deals to conserve for other needs that arise from the war. However, I find this unlikely. In fact, SALIC would be even more eager to complete the transaction, since their mission is to support the Saudi Vision 2030 and enhance food security. This would look even more urgent in the current circumstances, much like how Covid exposed food vulnerabilities in many countries. In the event that the SALIC deal does not go through, its not a great loss either. Olam Agri is a great piece of business to own!

The next threat would be inflation. With the choking of the Strait of Hormuz, fertilizers are the other important global export that has been impacted. Oil feeds into all facets of society and would greatly increase both inflation and inflationary expectations. Cocoa and coffee could rise to prior heights again. I am not one to try to forecast commodity prices since the forces moulding them are more complex than I could understand. At the minimum, we know that ofi would still be profitable in that environment though less so.

Conclusion

With each day passing, we are getting nearer to the outcome of the regulatory approval for sale of Olam Agri. The recent unrest in the Middle East has driven the general market lower and made Olam Group even more undervalued at these levels. The company has shown a steady realisation of assets in the Olam Remaining Group over the years. In the latest financial report Olam Group mentioned that it has “commenced a formal bidding process and is evaluating multiple offers from third party interested parties” for Mindsprint and its subsidiary groups. In describing the subsidiary group up for sale, “The profit after tax for the year ended 31 December 2025 and the net assets of the Subsidiary Group as at that date amounted to US$19.9 million (S$26.0 million) and US$63.2 million (S$81.2 million), respectively.”.  Adding on the potential completion of OA and ARISE transactions, we could be looking at some special dividends in 2026. What do you think?

Disclaimer: All posts on The Squirrel's Drey are for informational and discussion purposes only. This is not a recommendation to buy or sell securities discussed. Please do your own due diligence before investing.