Noble

Noble swung into 3Q16 net loss of US$28.1m (3Q15: US$24.7m profit, 2Q16: US$54.9m loss), crimped by working capital constraints, which restricted activity in the energy segment amid a rising price environment.

This brought 9M16 loss to US$42.5m (9M15: US$193.9m profit), a far cry from full year consensus profit forecast of US$115.5m.

For the quarter, revenue tumbled 34.8% to US$11.44b, due to lower sales tonnage of 56.8mt (-20.1%), as well as lower prices across the energy spectrum.

Segment performance:
Energy - Revenue: US$10.25b (-30% y/y, -1.4% q/q); operating income: US$11m (-95% y/y, -92% q/q)
Top line was weighed by depressed oil prices, further dragged by reduced volume of 38.9mt (-5%). Operationally, working capital constraints restricted trading activity but are expected to moderate going into 2017 following significant progress to bolster liquidity.

Gas & Power - Revenue: US$151m (-22% y/y, -0.7% q/q); operating income: US$75m (-17% y/y, +44% q/q)
Sales was dragged by lower volume of 92.5m MWh (-8%) and the ongoing sale of Noble Americas Energy Solutions as well as its European gas & power book. Operating margin improved to 49.7% (+15.5ppt) on higher US natural gas and power prices due to increased power demand from rising temperatures.

Mining & Metals - Revenue: US$965m (-48% y/y, -32.2% q/q); operating income: US$117m (3Q15: US$30m loss, 2Q16: US$4m)
Top line performance was affected by the restructuring and rationalisation of the business, as well as working capital constraints. However, operating income improved, bolstered by increased volume of 7.6mt (+10% y/y, +18.8% q/q), led by Chinese demand in raw material imports, including iron ore, metallurgical coke, bulk ores and alloys, due to the resurgent real estate sector.

At group level, operating cash flow remains negative at US$46m (2Q16: US$84m outflow) although the bleeding appears to have abated. Following the recent rights issue, adjusted net debt (less readily marketable inventory) has fallen to US$1.9b (2Q16: US$2.4b), with headroom now at US$1.2b from US$0.8b in 2Q16.

With the upcoming sale of Noble Americas Energy Solutions scheduled to complete in Dec, liquidity is expected to improve further, easing the belt-tightening on the commodity trader.

At the current price, Noble is currently trading at 0.46x P/B. The street has 2 Buy and 5 Hold ratings on the stock, with average TP of $0.27.

Latest broker ratings:
Morgan Stanley retains Overweight with TP of $0.23
Credit Suisse maintains Neutral and raises TP to $0.21 from $0.15