Noble Group - a barometer for global trade
CHINA INVESTMENT Corp’s US$850 million investment for 11% in the enlarged share capital of commodities supply chain manager, Noble, sparked a flurry of positive analyst calls.
This week, DBS Vickers initiated coverage on the large cap stock with a ‘Buy’, Macquarie upgraded the stock from “Neutral” to “Outperform”, while Nomura reiterated its ‘Buy’ call with an upgraded price target.
438m new shares and 135m vendor shares from Noble CEO Richard Elman’s trust fund were placed to the Chinese sovereign wealth fund at S$2.11 per share by the leading supply chain manager in agriculture, energy, metals, minerals and ores as well as logistics.
The group's operations span South America to Australia and China, and it has over 4,000 customers.
The stock last closed at S$2.44 per share.
| Date | Broker | Call | Target Price | Upside |
24 Sep 2009 | DBS Vickers | Buy | S$2.80 | 15% |
22 Sep | Macquarie | Outperform | S$2.80 | 15% |
22 Sep | Nomura | Buy | S$2.70 | 11% |
DBS Vickers (analyst: Ben Santoso)
Following the placement, the analyst expects Noble’s net gearing to drop to 35% (from 87% in 2Q09). This, and potential listing of Glencore (a competitor) are near term catalysts for Noble share price to move higher, says the analyst.
He likes Noble’s strong growth outlook and pipeline business model, such as the expansion of its soybean crushing capacity in Argentina, ramping up coal production from Indonesia and Australia, and increasing sugar refinery capacity in Brazil.
These and other facilities under construction will contribute to Noble’s volume growth over the next three years, says the analyst, who expects next year’s sales to jump from increased soybean crush capacity as commodity prices recover along with the global economy next year.
Nomura (analyst: Daniel Raats)
As a result of the placement, the CEO has diluted his holdings in Noble from 31% to 24%. This is the second share sale by the founder, who earlier this year (12 May, 2009) sold 36 million shares.
However, Nomura sees the move is primarily motivated by retirement planning on his behalf and should not be viewed as an indication of a diminished interest in the company, where he continues to be involved in the day-to-day management of the group.
Nomura is positive on the placement, and views the potential advantages of having CIC as a strategic investor as far outweighing dilution concerns.
An joint investment in infrastructure assets and supply chain management related to agricultural assets has already been announced.
The plus points include enhanced access to quality customers in China (a key delivery market for Noble’s Agricultural, Energy and MMO division), lower funding costs, and shared capital burden.
The analyst believes Noble’s near-term share price performance should benefit from a continued narrowing in the FY10F P/E discount to listed peers Wilmar (17.9x) and Olam (22.4x).
Macquarie (analyst: Patrick Yau)
Macquarie believes that the CIC investment will certainly spark renewed interest in the stock.
The analyst likes Noble as it believes the company is on track for a strong 2009, with ROE at near 20% (or 25% inclusive of revaluation gains), strong execution, careful risk management, very low financial gearing ratios and a diversified earnings pool.
These factors lead the analyst to believe that Noble’s earnings volatility will reduce over time, leading to further re-rating.
Wilmar – upgrade on subsidiary listing
OCBC Investment Research (analyst: Carey Wong)
Carey Wong upgraded his price target for Wilmar to S$7.51 (from S$7.28) after Hong Kong papers reported its intention to list its China food processing business next month.
The eye opener for those hammered by Singapore valuations, is that the IPO is looking to raise some HK$27.3 billion (US$3.5 billion), effectively pricing the IPO at a prospective 16-20x FY09F PE.
Wilma is one of the leading oilseed crushers in China, with a significant share of the cooking oil market there.
The stock last closed at S$6.75 per share.
| Date | Broker | Call | Target Price | Upside |
23 Sep 2009 | OCBC Investment Research | Buy | S$7.51 | 13% |
Olam – upstream M&A to become one of the world’s top 3 almond producers
JP Morgan (analyst: Ajay Mirchandani)
The analyst views Olam’s acquisition of Australian Almond Orchards for A$128 million as a steal. (The price includes one-off legal and other costs amounting to A$142 million.)
The acquisition enables Olam to gain 30% market share in Australia in a nut with global consumption that has grown at about 8.3% p.a. from 2001-07.
This makes Olam one of the world’s 3 largest almond producers as well as one of the cheapest.
The analyst estimates the acquired asset will contribute S$40 million (post-tax) by FY13/14 with a potential ROE of 50%, and value accretion of 10 to 25 cents a share.
The agricultural producer supply chain manager supplies 14 products in four broad categories: 1) edible nuts, spices and beans; 2) confectionary and beverage ingredients; 3) food staples and packaged foods; and 4) fiber and wood products.
The stock last closed at S$2.46 per share.
| Date | Broker | Call | Target Price | Upside |
21 Sep 2009 | JP Morgan | Overweight | S$3.70 | 50% |
