Noble Group - Goldman Sachs

Arigato Aquarius for your interesting views on NOBLE. They are on fundamentals (in yr view) but from a technical perspective, NOBLE is at a compelling juncture. It could shoot up from this level of 45 cents. On top of tat, hearing of possibilities of NOBLE being p-. The P word which is music to long-suffering shareholders.

@Poh
My comments were mostly based on accounting "irregularities" and loopholes, and the issue of non-transparency of critical information as practiced by the management of Noble Group. They were not based on the group's fundamentals. This area of analysis was already well covered by both Muddy Waters and Iceberg Research. In fact, if market pricing of stocks was based on business fundamentals the Noble Group would not even be worth the price level that you quote. The group is inundated with a lot of unfavourable factors, viz.

(a) It is very heavily geared. And this factor is like the albatross that hung around the Ancient Mariner's neck. If the profit margin in their trading volumes are wide, and with no collection problem, there would be no cause for undue alarm. However, once the margin narrows (as it is now under present conditions where prices of most commodities have dropped) and if faced with possible bad debts, the albatross may well turn out to be its Waterloo. The reason can be explained in (b) to (d) below.

(b) The group does not have any debt retirement policy. Virtually all of its debts, whether through short term capital instruments or longer term ones, are basically on a roll-over basis, with one source of funds from the capital market being paid off upon maturity by inflow from another source(s). It is like playing musical chairs and the game can continued to be played as long as there is an extra and empty chair for the players to manoeuvre . However, if there is a hiccup in this system it will turn into a house of cards, one falling after another.

(c) The group's businesses do not generate net cash every year, and with no debt retirement policy in place, its debt burden is not being reduced yearly but also increases with the growth in its trading volume. As its business see yearly growth so too will its debts. In other words, this is a potential risk bubble that would keep on inflating. Imagine what would happen when it is poked by a needle.

(d) The survival of the group hinges on the continued support of the major capital market players, fund managers, and bankers. And the flame that burns for them is the continued confidence in the group being able to continue not only in achieving profitability but also in managing its cash flow, especially in its ability to raise funds from the capital markets as and when debts mature. That is why it is critical for the management to ensure that its share price does not tank, as when that happens, confidence would be eroded and it would become very hard for them to source for funds when the maturity of the next tranche of debt arrives. All it would take is for one instance of inability to raise funds by debt maturity date and the group would be walking the path into possible insolvency if bankers start to pull out one after another. Not that it would happen now, but the contingency certainly exists. It's like holding on to a time bomb

That is the reason why the management went on a hard sell to try to restore confidence in both its business model and its operations in an effort to stem the slide in its share price. Those several exercises were more directed for the major capital market players and bankers rather than the general retail public. And such actions were also supported on the flanks by the management's recent adoption of share buy back policy. In fact, based on its aggressive share buy back actions over the past couple of months averaging at the price of 0.68 the group has already made a book loss of at least $50m based on its current price, something which it would have to provide for when valuing its assets for the current quarter. This, coupled with thinning margins in commodities trading, would probably result in the group reporting a net loss for the quarter ending September 2015.

Technical charts may show one side of things because they are based on human purchasing and selling sentiments and mentality. Such organizational behavioral pattern revolves mainly around herd instinct where one leads and the others follow. Without optimistic write-ups by brokerages and fund managers or credit rating agencies, there would be no mass buying interest in any subject stock. And consequently, the same would happen when the analysts' reports are adverse.

Just my 2 cents worth.

Noble Is No Glencore, Jefferies Says With Target for Rally (1)
2015-10-15 07:25:40.594 GMT


(Updates share price in fifth paragraph.)

By Jasmine Ng and Jonathan Burgos
(Bloomberg) -- Noble Group Ltd.’s recent shares losses,
when Asia’s biggest commodities trader dropped in tandem with
Glencore Plc, may represent an anomaly as the companies are
different, according to Jefferies Group LLC.
While most of Glencore’s asset base and earnings come from
mining and the business is significantly affected by swings in
raw materials, Noble is mostly a supply-chain manager, analyst
Abhijit Attavar said in a report. That means the Singapore-
listed company is a middleman who takes little direct price risk
in commodities, according to Attavar.
Glencore’s shares sank to a record last month amid concern
that the company may struggle to repay debt as commodity prices
languished near multiyear lows. In Singapore, Noble also
plunged, exacerbating declines from earlier this year that were
spurred by criticism of its accounting practices and short-
selling.

“Driving down Noble’s share prices to reflect a weak
commodity price cycle therefore represents a fundamental
anomaly,” wrote Attavar, who has a target of S$1.30 on the
stock, more than twice its present level. There remains a
“fairly crowded short position” in Noble that’s vulnerable to a
short squeeze should there be any positive catalyst, he said.

Shares in Noble rose as much as 4.2 percent to 49.5
Singapore cents on Thursday before trading at 49 cents at 3:22
p.m. local time. After Glencore plunged 29 percent in London on
Sept. 28, Noble fell 10 percent in Asia the next day.
Noble Chief Executive Officer Yusuf Alireza said on
Wednesday he should have been more forceful in pushing the
trader to boost transparency as the company fended off the
attacks over its accounting and battled the share-price slump.
Most of Noble’s rivals are private and didn’t face the same
scrutiny, said Alireza.

Noble is de-gearing.

Noble Group Limited (the "Company") is aware of media articles to the effect that there will be a sale
of the Company's 49 percent holding in Noble Agri Limited.
The Company confirms that it is in advanced discussions with potential purchasers on both this sale
and other strategic transactions, but no definitive or legally binding documents have yet been signed
and there can be no assurance that the sale or any other transaction will proceed. The Company will
update the market if and when it is appropriate to do so.