On Tuesday, Iceberg Research hauled fresh criticisms levelled at Noble Group, stating that the recent accounting review the latter had hired PricewaterhouseCoopers to do “will not answer the question the market is asking” and that investor confidence in Noble Group is eroding.

Iceberg had on 16 April urged Noble Group shareholders to challenge the company’s management on accounting and governance issues during the company's annual general meeting. Their first attacks on Noble were in February when they alleged that Noble was inflating its assets by billions of dollars.

Since February, Noble’s share price has dived 46% from over $1.40 to its current $0.650. Last month, the stock had rebounded 17.8% in 14 trading sessions from its 6-year low of $0.645 but has drifted back down this month…


Iceberg strikes on Noble Group again
On Tuesday 21 July, Iceberg Research published a note on their blog with fresh criticisms on Noble Group. Amongst the issues highlighted, Iceberg noted that Noble Group has failed to clearly define the scope of a review by PricewaterhouseCoopers (PwC) into its accounting. Earlier this month, Noble Group announced that they hired auditor PricewaterhouseCoopers to review the way it values some of its assets – its biggest move yet to boost transparency after Iceberg’s repeated attack on its accounting practices.

Iceberg says PwC’s audit assignment should focus on checking if the company complies with “spirit of the law” in terms of booking future profits on its accounts, as well as the letter of the law. "The most obvious issue is that Noble has not clearly defined the scope of the review. Noble has not published the letter listing PwC's assignments.” Iceberg believes that “PwC will merely work on the valuation framework rather than the valuation of the portfolio itself, counterparty by counterparty… Importantly, PwC will not answer the question that the market is asking."

Iceberg also stated that investor confidence in Noble Group is “clearly eroding”, as reflected by S&P's decision in June to revise the commodity giant's rating outlook from stable to negative.
 
They noted that it is an anomaly that Noble Group is nevertheless able to keep its investment grade, observing that “It is difficult to understand why a company who has recorded abysmal operating cash outflow, for example (S$1.15 billion) since 2012 when Yusuf Alireza was appointed (despite a combined net profit of S$940 million during the same period) is still investment grade” and that “credit agencies will inevitably be forced to address this anomaly. The revision of the outlook is only the first step, which puts Noble in a vulnerable position."
 

“Accounting is robust”, Noble says
On these fresh round of allegations, Noble has responded that their “accounting is robust,” and the company is supported by stakeholders and the third-party Assurance Review of Noble’s term contracts by PwC, overseen by an independent board committee and carried out in accordance with the Singapore Standard on Assurance Engagements, offers further transparency to the market.
 
Noble has previously said it rejects all criticism from Iceberg and others on its accounting practices.
 
A PwC spokesman says no immediate comment on Iceberg report.


MER “Outperform” on Noble Group
In a previous research report published on 7 July 2015 after Noble announced that they had hired PwC to conduct a thorough review of their accounting practices, Macquarie Equities Research (MER) had reiterated their Outperform rating on Noble Group, stating that the stock is cheap at 0.78 times its book value per share (excluding perpetuals). MER has a 12-month target price of $1.35 for Noble Group.

Source: Macquarie Research - 23 Jul 2015