• Files lawsuit for conspiracy to injure
• Calls allegations “inaccurate, unreliable, misleading”
• Buy at S$0.85 or better

Initiates lawsuit against Iceberg Research

Noble Group has initiated legal proceedings against Arnaud Vagner, a HK resident, and Enlighten Ace Ltd, a Seychelles company, at the HK High Court for conspiracy to injure Noble Group. This is in response to the third report issued by Iceberg Research where it alleged that Noble has over-stated its debt and gearing numbers, and that the commodity trader is only worth S$0.10/share after taking in all the writedowns. Noble has also called Iceberg Research’s allegations as “inaccurate, unreliable and misleading”.

Allegations are nothing new

On our part, we have taken a look at the reports and these allegations (which Iceberg said were based on publicly available information) are nothing new – in fact, some of the practices stem from the way how trading houses operate. Nevertheless, concerns over fair values are likely to remain, given the more muted outlook for commodities in general. Recall that Noble had to take a US$356m write-down in the value of Yancoal on its balance sheet to US$322m in 4Q14. However, Noble stressed that the current depressed market value of Yancoal's shares do not appropriately reflect the value and quality of its mines, given the two key shareholders own 91% of the shares.

Near-term volatility to remain

As such, we think that we are likely to see more near-term volatility in the company’s share price as it will take time for Noble to regain market confidence. Despite insider buying interest over the past few weeks, we also saw Invesco buying and then selling some 15m shares between 16 and 19 Mar for a loss of S$1.1m.

On the bonds side, we note that the yields on Noble’s bonds have also risen sharply, suggesting that the market sentiment is still very cautious. As we had already revised our forecasts after its 4Q14 results, we will not make any adjustments now. Maintain HOLD with an unchanged S$1.05 fair value (based on 13.5x FY15F EPS). But due to the on-going uncertainty, we would prefer to buy in at S$0.85 or better.

Source: OCBC Research - 25 Mar 2015