Is it too late to invest in Noble Group?

SGX-listed Noble Group, the global commodities trader which fell prey to a short-seller report in 2015, surged as much as 27% since 14 Feb 2017 after Reuters’ media report that China’s state-owned Sinochem may be taking a strategic stake in Noble. Could this be Noble’s best Valentine’s Day gift ever? Is it too late to participate in the rally?

We make 5 key observations to help investors judge the risk-reward of a potential investment in Noble.

  • The strategic investment is a win-win deal for both companies, as 1) Sinochem can gain access to Noble’s supply chain while 2) Noble can get more business from Sinochem.
  • The fundamental outlook for the commodities market is improving, as evidenced by the dramatic rebound in commodity prices. As a global commodities trader, Noble looks set to gain from the market recovery.
  • While Noble has lost one of its crown jewels with the sale of its US Energy Solutions business, the US$1.2 billion proceeds from the divestment will be used to lower its gearing and interest burden substantially. In addition, Noble will recognize ~US$400 million sales gain, thereby boosting its profitability.
  • Noble’s current share price is at 53% discount to its last reported book value of 42 cents/share. Its global peer, Glencore, has already seen its share price jump 3 folds over the past one year.
  • There are heavy buying in Noble’s shares by global funds, with most recent ones being Prudential and Orbis Investment Management. This may provide downside support.

Taking all these into considerations, an investment in Noble may potentially still yield very attractive returns. Key risks include deterioration in commodities market, funding shortfall, and continued attacks by short sellers.