Noble Group Limited has entered into a share sale agreement with COFCO (Hong Kong) Limited to dispose its 51% stake in Noble Agri Limited (NAL) for an initial payment of US$1.5b. The closing amount will be adjusted after completion so that the final consideration is equal to 1.15x of 51% of the audited book value of NAL Group for FY14. As before, we see the proposed disposal as being consistent with Noble’s asset-light strategy, where it does not have to own upstream assets as long as it can secure the off-take. Anyway, it is still too early to make any drastic estimate changes, given that the deal is subject to several conditions with a long stop date of 31 Dec 2014 (unless mutually extended or terminated). Nevertheless, our fair value improves from S$1.03 to S$1.26 as we are raising our valuation peg from 11x to 13.5x FY14F EPS to reflect the improved investor sentiment towards commodity plays in general. Maintain HOLD.
Disposing 51% stake in Agri business
Noble Group Limited has entered into a share sale agreement with COFCO (Hong Kong) Limited to dispose its 51% stake in Noble Agri Limited (NAL); this for an initial payment of US$1.5b, but the closing amount will be adjusted after completion so that the final consideration is equal to 1.15x of 51% of the audited book value of NAL Group for FY14. As of end FY13, the audited book value of NAL Group was ~US$2.8b and net debt was ~US$2.5b.
Capital recycling exercise
According to Noble, the deal will create a JV that will be COFCO’s principle base for sourcing food materials globally, which effectively combines Noble’s broad origination base and pipeline and risk management capabilities with COFCO’s leading access to the Chinese consumer. Noble adds that the deconsolidation of third party debt of NAL as well as the release of the capital currently invested in the business will significantly improve the group’s credit profit and financial metrics. As before, we see the proposed disposal as being consistent with Noble’s asset-light strategy, where it does not have to own upstream assets as long as it can secure the off-take.
Positive pro-forma impact but we see it as one-off
According to Noble, it will receive ~USS$1.49b of net proceeds, which it will use to repay existing debt and for working capital purposes. In addition, the excess over book value is US$47.6m; the estimated gain on disposal is ~US$64.8m. And on a pro-forma basis, the disposal would have contributed some US$302.8m to its FY13 bottom-line. While we would see these gains as being one-off items, we believe there could be significant interest savings down the road.
Too early for drastic estimate changes
Anyway, it is still too early to make any drastic estimate changes, given that the deal is subject to several conditions with a long stop date of 31 Dec 2014 (unless mutually extended or terminated). Nevertheless, our fair value improves from S$1.03 to S$1.26 as we are raising our valuation peg from 11x to 13.5x FY14F EPS to reflect the improved investor sentiment towards commodity plays in general. Maintain HOLD for now.
Noble Group Limited has entered into a share sale agreement with COFCO (Hong Kong) Limited to dispose its 51% stake in Noble Agri Limited (NAL); this for an initial payment of US$1.5b, but the closing amount will be adjusted after completion so that the final consideration is equal to 1.15x of 51% of the audited book value of NAL Group for FY14. As of end FY13, the audited book value of NAL Group was ~US$2.8b and net debt was ~US$2.5b.
Capital recycling exercise
According to Noble, the deal will create a JV that will be COFCO’s principle base for sourcing food materials globally, which effectively combines Noble’s broad origination base and pipeline and risk management capabilities with COFCO’s leading access to the Chinese consumer. Noble adds that the deconsolidation of third party debt of NAL as well as the release of the capital currently invested in the business will significantly improve the group’s credit profit and financial metrics. As before, we see the proposed disposal as being consistent with Noble’s asset-light strategy, where it does not have to own upstream assets as long as it can secure the off-take.
Positive pro-forma impact but we see it as one-off
According to Noble, it will receive ~USS$1.49b of net proceeds, which it will use to repay existing debt and for working capital purposes. In addition, the excess over book value is US$47.6m; the estimated gain on disposal is ~US$64.8m. And on a pro-forma basis, the disposal would have contributed some US$302.8m to its FY13 bottom-line. While we would see these gains as being one-off items, we believe there could be significant interest savings down the road.
Too early for drastic estimate changes
Anyway, it is still too early to make any drastic estimate changes, given that the deal is subject to several conditions with a long stop date of 31 Dec 2014 (unless mutually extended or terminated). Nevertheless, our fair value improves from S$1.03 to S$1.26 as we are raising our valuation peg from 11x to 13.5x FY14F EPS to reflect the improved investor sentiment towards commodity plays in general. Maintain HOLD for now.
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