Battered Noble Group is 'bargain of decade', says broking firm

Noble Group's logo displayed at its office in Hong Kong.
Noble Group's logo displayed at its office in Hong Kong. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - 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 with a buy call backed by forecasts for rising profit and sales.

"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 US$750 million to improve liquidity.

"It's a beaten-down stock that's been under tremendous pressure," Mr Tiruchelvam said in a phone interview on Friday (Jan 29). He's 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 gained on Friday, rising as much as 3.7 per cent to 28 cents and trading at 27.5 cents at 9:33 am local time. It's still 31 per cent lower in 2016, making it the biggest loser on the Straits Times Index this year, after dropping the most among index members last year.

"Concerns such as the credit-rating downgrade and accounting issues appear priced in," Mr Tiruchelvam said in the Jan 28 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."

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.

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, Mr Tiruchelvam wrote. The company's volume growth was set to remain strong, he said.