NOBLE GROUP LIMITED
N21.SI
Noble Group - Instilling confidence takes time
- 4Q15 core loss of S$48.1m below expectations
- Hit by losses in Mining & Metals and logistics business
- No final dividend declared
- Next milestone - refinancing of credit facilities
Range bound for now.
- We maintain our HOLD call and revise our TP lower to S$0.32.
- We believe it will take time for Noble to restore confidence in its business model. For example, despite Noble strengthening its balance sheet through the proposed disposal of its 49% stake in Noble Agri, sentiment continues to be fragile, given the downgrade of Noble’s credit rating below investment grade by Moody’s and S&P as well as Noble reporting impairments on its assets.
Potential re-rating catalysts.
- To overcome investor concerns, we believe the following initiatives may help to re-rate Noble. These include:
- a partial or full sale of its associates and/or Level 3 assets at or above stated book value to demonstrate the value of these assets; and
- strategic investor in Noble itself or one of its divisions to provide reassurance over its business model.
- However, ultimately Noble has to demonstrate a sustained improvement in its free cash flow generation and earnings growth to support any re-rating.
Headwinds from downturn in commodity markets.
- Given continued weakness in various commodity markets, we believe the ability to grow earnings is increasingly getting harder.
- Nevertheless, we still expect volume growth largely from Noble picking up market share from its smaller competitors and expansion into the energy and power markets.
Valuation:
- We cut our TP to S$0.32 from S$0.42. To better capture the improvement in earnings due to the absence of loss making Noble Agri, our TP is now a blend of PE valuation (S$0.34 : using PE multiple of 5.3x which is -1SD since 2005) and P/B valuation (S$0.29 : 1x P/BV but attributing zero value for its associates/JVs, Level 3 assets and intangibles).
Key Risks to Our View:
- The key risk to our view is Noble securing a reputable strategic partner which would provide confidence over the valuation of Noble’s assets which is being challenged by investors and its ability to generate sustainable positive free cash flows.
Mervin Song CFA
DBS Vickers
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http://www.dbsvonline.com/
2016-02-26
DBS Vickers
SGX Stock
Analyst Report
0.32
Down
0.42
