There is much excitement swirling around the announcement that Singapore food group Olam Food Ingredients is planning dual listings in Singapore and in London. From the perspective of UK investors, it should mean the arrival of a major new food stock which could be big enough to be a FTSE 100 constituent.
Here are five things to bear in mind about the Olam Food Ingredients IPO before you buy the stock:
#1. Vote of confidence in the London equity market
The IPO is being seen as a major vote of confidence in the London stock market. Post-Brexit, many brokers in the Square Mile have been worried about London’s ability to attract this kind of marquee listing. Concerns have been stimulated by defects to Amsterdam and also a worry that listing rules in the US simply make that market more attractive. To see an Asian food giant like Olam coming to the UK market will cause many brokers to breathe a sigh of relief.
#2. Beefy food stock replaces many that have been lost
The UK stock market has been denuded of major blue chips in the foods sector. We still have to see whether Olam will qualify as a food manufacturer, but there has been a bit of a vacuum created here with the loss of names like Cadbury Schweppes, United Biscuits, Hillsdown Holdings and Albert Fisher. Its arrival on the London market will provide investors with a route into “the changing world of food ingredients, which is seeing an expansion in its opportunities through the growth in demand for plant-based foods,” says Mark Lynch, partner with Oghma Partners, the London corporate finance house.
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#3. Olam looking for a punchy valuation
Sources close to Olam have already said the company is looking to raise over $2.8 billion through the listing. This would make it one of the largest IPOs on the London market in recent history. Olam management, including CEO Sunny Verghese, are being understandably cagey as to exactly how much they are shooting for. Timing will be important here. Volumes in the market in London have been well down in July and August, according to broking sources close to The Armchair Trader, but we expect that to pick up in the next few weeks. The IPO is going to be seen as a barometer of investor confidence in Asian super stocks.
#4. Taps into the growing market for plant-based foods
Plant-based foods remain a major growth sector and we see this expanding over the next five years (see our coverage on Zoglo’s Incredible Food Corp). Olam FI looks very well placed to capitalise on this. The company is active in a number of soft commodity markets, including cocoa, coffee and edible nuts. Other areas include rice, cotton and even edible oils. Even over the short term, given price inflation in these areas, Olam FI should be able to deliver respectable numbers to investors.
#5. Some big names on the shareholder registry
Olam has attracted some major investors as shareholders. It is unlikely that they will be planning to exit after the IPO, but there may be a temptation to take some profits. Foremost among them is Temasek Holdings, the de facto Singapore sovereign wealth fund, which is controlling shareholder of the company. Others include Mitsubishi Corp.
Note that Olam FI was created in 2020 following a reorganisation of the parent company, Olam International. Olam had told shareholders in Asia that a listing of OFI by 2022.