Photographer: Martin Leissl/Bloomberg

Battered Noble Group May Be the 'Bargain of Decade'

  • Rating cuts, accounting issues `priced in,' Tiruchelvam says
  • Sales, profit forecast to rise as company boosts volumes

The worst performing stock on Singapore’s Straits Times Index is actually the bargain of the decade, according to Religare Capital Markets, which started coverage of commodity trader Noble Group Ltd. with a buy call backed by forecasts for rising profit and sales. The shares rallied.

“The stock is at a quarter of its average valuation in the last decade,” analyst Nirgunan Tiruchelvam wrote in a report, with a target of 37 Singapore cents, compared with Thursday’s close of 27 cents. The Hong Kong-based company is “the bargain of the decade,” according to a headline in the note.

Noble Group shares have been bludgeoned as some investors ditched commodity-related companies amid a rout in raw materials, and executives fended off criticism of the group’s accounting. The challenges facing Chief Executive Officer Yusuf Alireza deepened this year as Standard & Poor’s joined Moody’s Investors Service in cutting the company’s credit rating to junk. On Thursday, Alireza secured investors’ backing for the sale of Noble Group’s agricultural unit, garnering at least $750 million to improve liquidity.

‘Tremendous Pressure’

“It’s a beaten-down stock that’s been under tremendous pressure,” Tiruchelvam said in an interview on Friday. He’s covered Singapore equities since 2004, including commodity companies for a decade. “Remarkably, we have 31 percent upside but my target price is one of the lowest.”

Noble Group shares lost 65 percent last year, making it the worst performer on the Straits Times Index. It held that title on Thursday and was relieved of it on Friday as the stock jumped 15 percent to close at 31 Singapore cents, the biggest gain since Oct. 9. It’s still down 23 percent this year.

“Concerns such as the credit-rating downgrade and accounting issues appear priced in,” Tiruchelvam said in the Jan. 28 report, predicting sales would rise to $96.7 billion this year and $104.7 billion in 2017, lifting adjusted net income to $296 million in 2016 and $322 million next year. “Profit is collected at every point in the supply chain.”

CEO Alireza told shareholders on Thursday that the company still has the support of its banks, and the sale of the agri unit would help it to improve liquidity. Noble Group also announced further bond repurchases on Thursday, paring its debt burden.

Stock Purchases

Noble Group Chairman and founder Richard Elman told shareholders that the agri deal would further strengthen the balance sheet and boost the company’s credit metrics. Elman has bought stock at least nine times in the past year, boosting his position as the biggest holder.

Noble Group’s January 2020 notes jumped 3.2 cents to 50.2 cents on the dollar as of 5:07 p.m. in Hong Kong, according to Bloomberg-compiled prices. The 9.4 cent-surge since Jan. 22 is the best weekly rally since the notes were sold in October 2009. The cost to protect against bond default fell 1,153 basis points to 3,778 basis points in New York on Jan. 28 in the credit-default swaps market, the most since at least 2005, according to CMA.

While Noble Group’s business model enabled the company to grow irrespective of the direction of commodity prices, that wasn’t recognized by the market, so its shares have tracked raw materials lower, Tiruchelvam wrote. The company’s volume growth was set to remain strong, he said.

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