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Noble Sees Swift Turnaround In Expectations, Spinoff In The Pipeline

Contributed by Shares Investment

What do you get when a company booked its first loss after some good 14 years and the very day of bean spilling comes with the quitting of its chief executive officer? A heavy plunge in share price. That was what happened to commodities trader Noble Group when its share price nosedived 26.7% to close at $1.18 on 10 November 2011, following the release of its 3Q11 results. Just a day earlier the company closed at $1.61.

Double Whammy Brings Value

While investors were busy throwing shares of Noble Group off their books, there is, but one who joyously grabs all that the naysayers had abandoned. It should be anybody’s guess by now who took no second chance in the purchase… Noble Holdings (NH).

During the day of the plunge, NH bought 10 million shares of Noble Group at an average price of approximately $1.19 each, increasing its interest in the company to 21.5% from 21.4%. NH is an investment firm whose beneficiaries include the children of chairman Richard Elman. Soon after, Noble Group entered into a series of share buy-back with more than 33.9 million shares purchased as of 15 November 2011.

To date, even after rising up to 40% from its lowest close ($1.05) in November, the valuation of Noble Group appears undemanding, ranking it the lowest in terms of price-to-earnings (PE) ratio amongst its competitors at 11.7 times (as at market close of 7 February). On the other hand, the PE ratios of Wilmar International and Olam International were 21.9 times and 14.1 times respectively, according to data compiled by Shares Investment.

Quick Turnaround In Expectations

From the 23 analyst recommendations of Noble Group gathered by Bloomberg as at 16 January, 15 recommended “Buy”, 5 have “Sell” ratings, while the remaining 3 are “Hold”. It appears to be a swift reversal in expectations when a short 3 months ago, Noble was slapped with “Sell” calls by analysts following former chief executive officer Ricardo Leiman’s resignation.

The latest came from Kim Eng Securities which reiterated its “Buy” call on the commodity group with a target price of $1.85, substantiating its recommendation with “a possible agri-business spinoff in the pipeline, a sharp recovery in earnings leveraged to macro factors and a return in investor confidence”.

After Reshuffling Comes…

The latest addition to Noble Group’s board is former Goldman Sachs Group’s 19-year veteran Yusuf Alireza. Alireza will formally commence his role as Noble Group’s chief executive officer on 16 April, bringing with him years of experience in fixed-income and hedge fund sales. Also as part of the management’s reshuffle is the appointment of William Randall as a board member, who assumed the title of Head of Hard Commodities as of 6 February. Randall, who began his career in the company in 1997, will report directly to Alireza.

With the vital management position in placed, next in the pipeline could be the listing of Noble Group’s agricultural business, which has been approved by the Singapore bourse. Previously after the resignation of its former chief executive officer, uncertainty brewed in the market that the news may delay the company’s plan to divest its agricultural assets.

“It’s not a question of if, but when,” said Elman, when asked in an interview with Bloomberg on the spinoff of Noble Group’s agricultural assets. Those words came from the man who founded the billion dollar commodities giant with just US$100,000 in 1987.