Wednesday, April 23, 2014
Noble: Shares have jumped more than 34% since end Jan this year, outperforming the STI’s 8.3% gain. Macquarie Research, which rates Noble at Outperform with TP $1.50, has a positive read on the proposed 51% stake sale of its agriculture division (Noble Agri Limited, NAL) to COFCO, which will be supported by a reduction in gearing and an improvement in ROE post-completion of the deal (long stop date is 31 Dec 2014). Believes the risk-reward is clearly skewed to the upside, given that Noble’s weakest division was sold at attractive valuation. NAL is a highly geared (91%, 2013), low ROE (-10%) business, which will continue to return below its cost of equity in the medium term. Yet, Noble is set to receive 51% of 1.15x on NAL’s 2014 book value in cash. Upon completion of the deal, Noble’s net gearing (avg.14-16E) will drop significantly, by 70ppt (from 99% in 2013), and ROE will improve by 0.7ppt (from 7.7% in 2013) on account of higher interest income, offset by a lower contribution from the expected gradual recovery in NAL’s ROE in 2015/16E. Macquarie’s scenario analysis on SOTP yields -5% to 41% upside for Noble. Meanwhile, Noble has been securing more off-take agreements in Energy/Metals, Minerals and Ores through its partnerships with X2 and Sundance Resources. Depending on the reinvestment amount and returns, MER sees fair values in the range of $1.50-$1.77/sh.