• Still clouded with uncertainty
• Lower FV of S$0.61
• Valuations are not pricey on historical basis

Hits 6-year low

Noble Group (Noble) recently saw a sharp pullback in its share price to hit a six-year low of S$0.64; this could be in belated response to an “open letter from investor Michael Dee, who continues to question the company’s business model and accounting practices. As we had articulated in our previous reports, we believe that it will still take time for the company to regain the market’s confidence even though it has made efforts to improve transparency and disclosures in the wake of the negative reports from Iceberg Research and Muddy Waters.

Also likely weighed by weaker commodities outlook

But more importantly, we believe that the recent pullback could be due to a weaker outlook for commodities, which comes on the heels of a “new normal” for China i.e. slower economic growth. Also adding to the volatility is the growing uncertainty over the direction of crude oil prices – note that Noble has a significant exposure to the energy market (its Energy segment made up 84% of 1Q15 revenue).

Recent buying fails to prop up share price Also notable is the spate of insider and institutional buying interest over the past two weeks. From company filings, Prudential Singapore increased its stake from 6.9871% to 7.2019% after buying 14.481m shares at S$0.787 each on 29 May; chairman Richard Elman bought 3m shares at S$0.7574 each to up his stake from 21.0154% to 21.0599% on 2 Jun. Interestingly, Invesco first upped its stake from 4.99178% to 5.00935% on 2 Jun (+1.184m shares at S$0.763 each) and then reduced it back to 4.81905% (-12.824m shares at S$0.7276 each) the next day.

Reducing FV to S$0.61

In the wake of the more cautious outlook, we now reduce our valuation peg on the stock from 13.5x to 8x (1 SD below the 10-year average) FY15F EPS, and this reduces our fair value from S$1.05 to S$0.61. We are retaining our HOLD rating as current valuations are not pricey on a historical basis as Noble is currently trading at 0.7x book value.

Source: OCBC Research - 11 Jun 2015