Noble traded below the 50-day moving average yesterday and closed at $1.03, down 1% for the day. Macquarie Equities Research (MER) released a research note on 12 Nov with a ‘Neutral’ rating on the stock and a 12-month price target of $0.90.

Event
Noble's 3Q13 clean net income (post capital securities) came in at US$112m, falling 10% short of MER’s estimate of US$124m.
 
MER thinks the market was looking for a result on the order of US$110-120m and will see the result as "in line," which makes a break from the large shortfalls seen in recent quarters.
 
Moreover, MER sees high single-digit consensus earnings per share (EPS) upgrades for 2013E as possible (with 2014E being a bit lower).
 
Impact
This quarter's key takeaway, in MER’s view, was the rebound in annualized ROE to 9.4% from 4.2% in 1Q13 and 5.5% in 2Q13.
 
The sequential improvement is being driven by continued strength in Energy margins (holding steady near US$10/Ton), while Agri margins slowly recover (+1.3 in 3Q13 vs. -US$4/Ton in 2Q13). Selling, administrative and operating expenses are also being held under control.
 
The main negative MER found in the quarter was the 13% YoY contraction in Energy volumes. There was no indication as to whether this was a one-off or structural trend.
 
Noble also took a US$90m non-cash hit to its associate line item on the back of US$79m in FX translation and impairment charges at Yancoal Australia. The remaining US$11m was a provision for future losses. MER added all these items back to derive MER’s clean net income.
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Action and recommendation
Noble is currently trading at a price to book ratio of 1.2x, using 3Q13's book value per share of S$0.89, which strips out perpetual capital securities. Whilst Noble is demonstrating an improving ROE trend, it has a ways to go before it reaches its 12.5% cost of equity (ca. 2015/16 on MER’s estimates).

Source: Macquarie Research - 12 Dec 2013