We recently attended Noble Group’s (Noble) post-results analyst briefing and one of the key takeaways was management’s focus on maintaining an “asset light” strategy with opportunistic capital recycling. Another key takeaway was the focus on cost savings, including interest savings. While it is good that Noble has taken steps to improve its operations, we note that the macro picture continues to be quite challenging in the medium term, especially for its Agricultural business. As such, we maintain our HOLD rating on the stock with an unchanged S$1.19 fair value.
Asset-light commitment
We recently attended Noble Group’s (Noble) post-results analyst briefing and one of the key takeaways was management’s focus on maintaining an “asset light” strategy with opportunistic capital recycling. Noble does not have to fully own the up-stream asset as long as it can secure the supply with an “off-take” agreement with a minority stake. Management cited the merger between Gloucester Coal and Yancoal Australia as an example.
Acquisitions will also be on “asset light” basis
Noble will continue for look for more up-stream assets to acquire, and these will also be done on an asset-light basis, with Noble looking to take minority stakes with off-take agreements. Management says it prefers to go with a partnership model as full ownership of an upstream asset may put it at potential conflict with customers who are also producers; Noble also recognises that its expertise lies in supply chain management. Last but not least, Noble says it prefers to look at doing small deals at the right price than “headline” deals at the wrong valuation.
Also focus on cost and interest savings
Another key takeaway was the focus on cost savings. As Noble is a relatively complex group with numerous operations, management believes that there are inefficiencies that can be optimized or streamlined to save costs. Interest cost savings is another low hanging fruit that Noble can reap quite easily by refinancing its debt, given that the current rates are still lower than those on its outstanding debt. We also believe that the recent outlook upgrades by both Moody’s and S&P to stable bode well for its credit standing with investors.
Macro picture still challenging
While it is good that Noble has taken steps to improve its operations, we note that the medium-term macro picture continues to be quite challenging, especially for its Agricultural business. As such, we maintain our HOLD rating with an unchanged S$1.19 fair value.
We recently attended Noble Group’s (Noble) post-results analyst briefing and one of the key takeaways was management’s focus on maintaining an “asset light” strategy with opportunistic capital recycling. Noble does not have to fully own the up-stream asset as long as it can secure the supply with an “off-take” agreement with a minority stake. Management cited the merger between Gloucester Coal and Yancoal Australia as an example.
Acquisitions will also be on “asset light” basis
Noble will continue for look for more up-stream assets to acquire, and these will also be done on an asset-light basis, with Noble looking to take minority stakes with off-take agreements. Management says it prefers to go with a partnership model as full ownership of an upstream asset may put it at potential conflict with customers who are also producers; Noble also recognises that its expertise lies in supply chain management. Last but not least, Noble says it prefers to look at doing small deals at the right price than “headline” deals at the wrong valuation.
Also focus on cost and interest savings
Another key takeaway was the focus on cost savings. As Noble is a relatively complex group with numerous operations, management believes that there are inefficiencies that can be optimized or streamlined to save costs. Interest cost savings is another low hanging fruit that Noble can reap quite easily by refinancing its debt, given that the current rates are still lower than those on its outstanding debt. We also believe that the recent outlook upgrades by both Moody’s and S&P to stable bode well for its credit standing with investors.
Macro picture still challenging
While it is good that Noble has taken steps to improve its operations, we note that the medium-term macro picture continues to be quite challenging, especially for its Agricultural business. As such, we maintain our HOLD rating with an unchanged S$1.19 fair value.
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