Noble vs Olam

Noble vs Olam: UOB Kay Hian has report comparing the 2 supply chain managers. House note that both are globally diversified across commodities and geographies, but that could be where the similarities end. Structurally, they are different in terms of geographical footprint, commodity types and risk exposures.

Post-results Review
1) Olam’s net profit grew 15% while Noble turned in a loss. Olam posted net profit growth of 15% yoy in the seasonally weakest quarter while Noble turned in its first loss in more than a decade.
Compounding the shock loss for Noble was the announcement of the resignation of ex-CEO Ricardo Leiman just hours after the 3Q11 conference call. House downgrade the supply chain sector from O/w to M/w following downgrade of Noble.

2) Noble’s risk mgt in question. Noble was hit on several fronts during the quarter, including: a) cotton defaults in the US, b) lower-than-expected yields on its sugar crop, and c) weak soybean crush margins in China and South America.

3) Are Noble’s results a one-off event? Noble is likely to turn around in 4Q11. In house view, the 3Q11 loss was due a combination of factors, a few of which are not likely to be repeated. Some indicators, however, such as lower commodity prices, widening negative China soybean
crush margins as well as a poor outlook for Brazilian sugar cane crop, will likely put a lid on rev and earnings growth.

4) Risk management in focus. As Olam managed to avoid substantial default losses in the cotton business (where the two are comparable), Olam could be viewed by the mkt to have managed its risks more robustly than Noble.