Noble Group - DBS Research 2016-05-30: Changing tack

Noble Group - DBS Research 2016-05-30: Changing tack NOBLE GROUP LIMITED N21.SI 

Noble Group - Changing tack

  • Yusof Alireza steps down as CEO
  • Proposed sale of Noble America Energy Solutions
  • Maintain HOLD, TP S$0.32

What’s new

Resignation of CEO

  • Noble announced that Yusof Alireza has resigned as CEO and will appoint William Randall and Jeff Frase as co-CEOs. 
  • Mr Randall is currently Executive Director and Head of Hard Commodities while Mr Frase is President, Noble Americas and Head of Oil Liquids. Richard Elman will remain as Chairman and Executive Director.

Sale of Noble Americas Energy Solutions

  • Concurrently, Noble announced that it will be starting the sale process for Noble Americas Energy Solutions (NAES), one of the top energy retailers in the US. NAES was the former Sempra Energy Solutions which Noble acquired from RBS in 2010 for US$318m (Noble also assumed c.US$265m worth of debt).

Financial impact

  • At this stage, the exact impact on Noble’s financials from the sale of NAES is still unclear, given Noble has never disclosed the earnings contribution for NAES and its selling price is yet uncertain. 
  • Nevertheless, if Noble was able to sell NAES for US$318m, in line with its original purchase price, Noble’s proforma 1Q16 gearing (net debt (excl. RMI)/equity) will decline from c.67% to c.58%. 
  • Gearing would drop further to c.50% if NAES was bearing debt close to its original borrowings of US$265m.

Our take

  • Yusof Alireza’s resignation was a surprise. However, we do not expect any major changes in strategy given both William Randall and Jeff Frase have been with Noble for several years and Richard Elman remains as Chairman and Executive Director.
  • While the sale of NAES will strengthen Noble’s balance sheet, we believe investors will remain cautious on the stock until Noble is able to achieve positive operating/free cashflows on a sustained basis. We maintain our HOLD recommendation and TP of S$0.32, pending further details on the sale of NAES.

Mervin Song CFA DBS Vickers | http://www.dbsvonline.com/ 2016-05-30
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.32 Same 0.32