Noble Group stock deemed 'bargain of the decade'

SINGAPORE • The worst-performing stock on the Straits Times Index is actually the bargain of the decade, says Religare Capital Markets, which started coverage of commodity trader Noble Group 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 when Standard & Poor's joined Moody's Investors Service in cutting the company's credit rating to junk.

On Thursday, Mr Alireza secured investors' backing for the sale of Noble Group's agricultural unit, garnering at least US$750 million (S$1 billion) to improve liquidity.

Mr Tiruchelvam said in an interview yesterday: "It's a beaten-down stock that's been under tremendous pressure."

He has covered Singapore equities since 2004, including commodity companies for a decade. "Remarkably, we have 31 per cent upside but my target price is one of the lowest."

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

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

Mr Alireza told shareholders on Thursday that the company still had the support of its banks, and the sale of the agri unit would help it to improve liquidity.

The company also announced further bond repurchases on Thursday, paring its debt burden.

Noble Group chairman and founder Richard Elman told shareholders that the agri deal would strengthen the balance sheet and boost the company's credit metrics.

Mr Elman has bought stock at least nine times in the past year, boosting his position as the biggest holder.

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A version of this article appeared in the print edition of The Straits Times on January 30, 2016, with the headline 'Noble Group stock deemed 'bargain of the decade''. Print Edition | Subscribe