Tuesday, 11 March 2014

Noble Group

Kim Eng on 11 Mar 2014

  • Noble’s shares rallied strongly last week on speculation about an agri-business JV.
  • But it is too early to get excited as the structure of the JV partnership is still unclear.
  • With business outlook this year still far from rosy, maintain HOLD and TP of SGD1.04.

What’s New
Noble’s shares rose strongly last week on speculation that the company was in talks with a consortium about forming a joint venture (JV) in agri-business. While this could bring a powerful partner into the business, it is still unclear whether the structure and valuation of the proposed JV would be in favour of Noble.

What’s Our View
Media reports have named China’s COFCO as the potential JV partner. If the talks come to fruition, the deal could prove strategically positive for both Noble and COFCO, in particular the latter as it can further expand its overseas reach following its recent stake purchase in Dutch grain trader Nidera. In the meantime, we will not get too excited about the JV until there is greater clarity on its structure. In our view, any asset sale at this juncture by Noble would not benefit shareholders given the current low valuation.

Though the stock is only trading at an undemanding 1.0x FY14E P/BV, Noble’s business outlook for this year is still far from rosy. Coal and iron ore trading, its biggest revenue contributor, could be affected by China’s policy change. Other base metals and the agriculture division are thus expected to be the key growth drivers. However, the current extreme weather in Brazil could hinder the recovery of Noble’s agriculture business. Maintain HOLD and TP of SGD1.04.

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