Noble Group's shares closed some 7.9% lower yesterday, after a little-known outfit Iceberg Research (IR) alleged that it has found "striking" financial similarities between Noble and Enron; IR estimates equity value to be less than US$360m, fair value of just S$0.10/share. Although Noble has issued a statement to completely reject these allegations, the near-term uncertainty is likely to linger, if the previous Olam-Muddy Waters episode is anything to go by. Due to the blackout period before Noble's FY14 results due 26 Feb, we are also unable to get much clarity from management. As such, we believe it is best to put our Buy rating and S$1.30 fair value under review until we do.
Shares tumble 7.9%
Noble Group's shares closed some 7.9% lower yesterday, after a little-known outfit Iceberg Research (IR) alleged that it has found "striking" financial similarities between Noble and Enron; these include overvalued assets, contracts fair values, working capital management, debt presentation among others. Because of these alleged exploits to avoid large impairments of assets/associates and fabricate profit, IR estimates that Noble's equity is less than US$360m (versus a reported US$5.6b) after various impairments it had listed in its report. It further values Noble's share to be conservatively worth just S$0.10.
Noble completely rejects these allegations
In a statement, Noble says it completely rejects these allegations, adding t hat all material information to which IR refers is in public domain. There has also been no material adverse change since the company last reported. The sharp drop in share price also drew a query from the exchange, to which, management replied that other than the IR report, it was not aware of any information not previously announced that might explain the trading.
Near-term uncertainty likely to continue
Although Noble has issued a statement to refute these allegations, the near-term uncertainty is likely to linger, if the previous Olam-Muddy Waters episode is anything to go by. While Noble may need to be more proactive in meeting with investors to categorically counter the allegations, we note that the company may be in a "blackout" period as it is due to report its FY14 financial results on 26 Feb, thus making IR's adverse report on Noble well timed.
Putting our rating under review
As we are also unable to get clarity from management due to the above-mentioned reason, we believe it is best to put our Buy rating and S$1.30 fair value under review. In the meantime, we will be going over some of the allegations raised by IR and hopefully get some answers from management during the results teleconference.
Noble Group's shares closed some 7.9% lower yesterday, after a little-known outfit Iceberg Research (IR) alleged that it has found "striking" financial similarities between Noble and Enron; these include overvalued assets, contracts fair values, working capital management, debt presentation among others. Because of these alleged exploits to avoid large impairments of assets/associates and fabricate profit, IR estimates that Noble's equity is less than US$360m (versus a reported US$5.6b) after various impairments it had listed in its report. It further values Noble's share to be conservatively worth just S$0.10.
Noble completely rejects these allegations
In a statement, Noble says it completely rejects these allegations, adding t hat all material information to which IR refers is in public domain. There has also been no material adverse change since the company last reported. The sharp drop in share price also drew a query from the exchange, to which, management replied that other than the IR report, it was not aware of any information not previously announced that might explain the trading.
Near-term uncertainty likely to continue
Although Noble has issued a statement to refute these allegations, the near-term uncertainty is likely to linger, if the previous Olam-Muddy Waters episode is anything to go by. While Noble may need to be more proactive in meeting with investors to categorically counter the allegations, we note that the company may be in a "blackout" period as it is due to report its FY14 financial results on 26 Feb, thus making IR's adverse report on Noble well timed.
Putting our rating under review
As we are also unable to get clarity from management due to the above-mentioned reason, we believe it is best to put our Buy rating and S$1.30 fair value under review. In the meantime, we will be going over some of the allegations raised by IR and hopefully get some answers from management during the results teleconference.
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