Noble Group - Goldman Sachs

@Mel
If one were to subscribe to the age old belief that when there is danger there is also opportunity, then, perhaps, one may take stock of the situation. In these times of weak market sentiments, and the fact that we are currently at the end of the 7-year cycle during which time statistical studies have shown that a "protracted" bearish slump would occur at least once during the period, it may be a little premature to jump into the wagon yet. No one would, a couple of years ago, be able to predict and expect that one of the darlings of the market, Ezra Holdings, which at that time was comfortably above the 1.00 range, would drop to the current level of 13-14 cents a share. The lesson to be learned is, of course, that the market is unpredictable.

Notwithstanding the above, stocks that are embroiled in controversy, whether financial or otherwise, are those that caveat emptor should apply. And one should exercise more due care and diligence when attempting to invest in them. Noble Group is one of them.

Today, that stock has dropped to about 0.45 (as at 1.30 pm), having succumbed to market sentiments and the mini-sell off, sinking by another 0.07 (13.4 %) from yesterday's closing of 0.52. Those who thought it was a good time to go in at yesterday's closing level would have been glad they did not. Frankly, the slide in Noble Group is appearing to look more and more like that which happened to Blumont stock after it suffered the initial heavy blow in the first week, and following this it was never ever going to recover because a large part of the excess (gain) over its actual intrinsic value in the market before the fall was sitting on a great big bubble, and when the bubble bursts we all know what is going to happen.

Right now most fund managers and capital market players are busy and frantically buying into the stock to average out in the hope of preventing further "disaster" to their total holdings, while others are simply dumping to reduce their exposure. The real threat to holding on this stock, IMHO, is when these major players decide that all is lost and the stock has lost its shine and credibility of recovery. It would mean then the management would have more difficulty in raising money to pay off revolving debts that are constantly due at regular intervals. Though the management has claimed that their cash float of $5b is sufficient at the moment, this was said on the assumption that they would be able to raise funds as and when they are needed. Therefore, when a hiccup occurs there will definitely be a cash crunch, and if the group was based on a house of cards everything will just go domino. That is why proper valuation of its assets and accurate reflection of them in their books, are of paramount importance.

Yesterday I wrote:
I believe there are still many retail investors who were still attracted or sucked in because of Noble falling price thinking it is cheap! cheap!
Aquarius, you can go at great length to warn of the pitfall of Noble yet what you see the post below.


End of yesterday Mel wrote:
No share buyback to support price, so can buy and hold until buyback resume. Today closed at 52 cents. Will tikam tomorrow if it goes below 48 cents.
Just my 2cents


Today Noble done as low as 43.5 cts and closed @ 45.5 cts. so what next, buy more?

In my view it is foolish to catch falling knives at this point of time. As for Noble it seen that the bubble is leaking gradually and very soon fall flat!

Shortists have been attacking this stock, and have since been buying back. This is fr SGX data on short positions.

The management of Noble Group has announced on 3 Aug 2015 that they have been app[roached by potential suitors who may be strategic investors, giving very few details (as usual) except that they may be interested in either financing or investment options. It was given with the caution that there is no guarantee that any deal may materialise if at all.

Whether this may eventually turn out to be a major catalyst for a revival of its share price remains yet to be seen, depending on what kind of a deal pans out, and how the general market would view it when details of its terms and conditions become public information. For the sake of investors who are already caught in this counter, particularly those who have bought it above the $1 mark and those who have gone in based on fund managers and investment analysts' "buy" call in the prior months, if not, years, it is hoped that there would be some sort of reprieve coming. Most investors would want to wait for PwC's Review to be completed before making any investment decision. As the Economic Times (India Times) reported on 3 Aug "If they get an investor, that would be quite a positive thing for them. But it depends on how big a stake they can take and at what price " (Quote : Wei Bin, analyst at Maybank Kim Eng Research). The analyst also posited that "they have done what they can do, but I don't think the worst is over." And this view was followed by a caution " that any investor that comes in today would have to do quite a bit of due diligence. They are investing in a falling knife" (quoting an unidentified Singapore based banker).

There is also the possibility that nothing may turn out after all. In this connection, any optimism at the moment must be guarded. The more well informed investor may remember the case of Blumont when, after the price had slipped by more than 80 % in early October 2013 from a high of $2.54, there was a change in Chairman (Molyneux) and he gave an undertaking to buy 135m Blumont shares at at a tentative price of 0.40 in an effort to starve off further fall of the stock (this was a premium much above the range of 0.13 - 0.15 stock price in the market at around that period). The offer price was then later revised downward and then suddenly cancelled just as sudden as when the initial offer of purchase was made. Nothing was done to establish whether such an initial undertaking was genuine or just a mechanism for buying time.

Let's hope that those with vested interest in Noble Group and who have been caught in the current downward spiral have some good news to cheer about in the coming weeks, if not, months, but hopefully, not years. In the meantime, the air of pessimism continues. Just yesterday when the price rose significantly from Fridays close of 0.455 to 0.60 as a result of knee jerk reaction to the "good news", the euphoria was shortlived as today correction has set in and it is trading at 0.555 currently at reporting time (4.10 pm). It can go any which way after this. IMHO I think it would probably settle at the 0.60 region for the meantime. After the protracted period of sell-offs in the China market which undoubtedly affected the markets in the region, its current see-saw movements are also not helping sentiments here.

Noble price recovered strongly on monday and tuesday are spark by news of potential white knight that might be in the wings with plans to take over the company. The share price increased were lifted by a short squeeze. Like what Aqurious had point out: 'It was given with the caution that there is no guarantee that any deal may materialise if at all'.

Noble share price have been on the downtrend since 10/1/2011 from $2.34 down to 56.5 cents today. The question ask:

"Why Noble share price sliding down for almost 5 years since it's high at $2.34? There must be a reason for Noble share price weakness over the year which the market knows.

The Muddy Waters and Iceberg Research reports is only earlier this year. So Muddy Waters and Iceberg Research reports cannot be the cause of Noble share price weakness.

In my opinion it is foolish to catch falling knives or trying to play poker on Noble at this point of time.

@Rock
Further to the points you mentioned in your comments, it must also be noted that after the new chairman of Blumont, Molyneux, withdrew his offer of purchase of the 135m shares in Blumont the price of the counter continued its slide progressively until it reached the current level and has been languishing there at around 0.01 for some time already.

The point to note is, if the potential investor or investors drop their investment or financing proposals with Noble, will the counter also face the same consequential drop and suffer the same fate as Blumont? A lot will depend on (1) what the PwC valuation model entails, if it was found that the previous MTM models adopted by Noble have been too optimistic in prespective, especially in the light of the worldwide slump in oil and commodity prices recently ; (2) whether there will be any improvements in the international commodity trading markets that may affect trading margins (on which valuation of profit from futures transactions are booked using the MTM models) ; and (3) whether Noble can maintain its current volume or increase their market share of transactions vis-a-vis the growing competitiveness in the industry where economies of scale is the key factor in determining profitability based on thin margin(s).

Noble will probably not sink to the level that Blumont is now in because its business model is different. Whereas Blumont's outlook was based on potential businesses to be derived from acquisitions of businesses that were not yet operational but only holding minings and other rights, etc, Noble's businesses are operational and its growth is both organic as well as from acquisitions of ongoing businesses. Therefore, by virtue of comparison, the risks in Blumont are very much higher than in Noble. To put it in another way, every dollar of loan or funding which Blumont borrows is expended on prospecting for gold, diamond and other minerals which does not translate into any income at the moment, whereas this is not the case for Noble.

The general industry outlook is not looking very bright at the moment and most of the players in this market have been hit by shrinking business volume and margins as well. CWT, for example, has just announced a couple of days ago its latest quarterly results showing significant drop in its business volume and profit margins, in line with the expectations of investment analysts covering this industry.

Business sense aside, stockholders of Noble should be concerned about the transparency issue of Noble. This veil of secrecy with minimum disclosures as a policy is not boding well for the more well informed and market sensitive shareholders. What they should note is the attitude of its management. Take for example the query by MAS on 31 Jul requesting them to provide explanation for the more than 10 % drop in its share price, for which the management did reply, but only 3 days later on on 3 Aug. Most companies would either reply immediately on the same day or, at the latest, the following day. What is of importance is not the standard reply that they were not aware of any reason contributing to the stark drop, but the additional information that they have been approached by potential suitors who may be interested in providing finance or taking equity in the group. This is price sensitive privileged information, and the question on most people's mind would be, had the MAS not made the query on 31 Jul, would this piece of information been forthcoming and the investing public be kept aware? Was it a mere coincidence that they were only approached by the potential suitors during this period? Or were they approached much earlier, either during or before the period they were conducting the series of share buy backs recently?