12 August 2013

NOBLE - Summary of 1H2013 Report

Noble announced net profit of US$ 106 M on the back of the total revenue of US$ 47,928 M, which is 65% dropped from previous reporting period. Agriculture division still suffered loss of US$ 120 M from the operation although the production increased 30% to 22.4 M Tonnage. The group adjusted product mix given the change in the structure of ethanol pricing in Brazil, with their ethanol production increasing more than 100% yoy basis. Grain and Oilseeds origination and trading business remains in challenging environment. The group expected Ukraine and Brazil crushing plants are ready by 3Q 2013.

Noble operating income margin on Energy improved to 2.31% from 2.02% in previous period with total operating income at US$ 719.4 M. The group sees coal as being a key component of the energy mix for foreseeable future and expect the seaborne coal markets to grow their volumes.

Noble achieved 41% yoy revenue growth in Metals, Minerals and Ores (MMO) driven by expansion into new products and geographies. Nonetheless, the operating income margin dropped to 0.76% from 1.45% a year ago due to tougher environment on their Iron Ore business. The management tried to create diversified portfolio to minimize the risk.

In overall, net working capital increased to US$ 4,654 M from US$ 4,287 M. The cash conversion cycle is deemed to be very good accompanied by the Trades Receivables DOH 14 days, Inventories DOH 12 days and Payables DOH 24 days.

For the debt concerns, Net debt increased by $272 million in line with working capital which increased primarily due to the strong harvest being seen in South America. Cash and cash equivalents stood at US$1.1 billion in line with historical levels. Leverage increased slightly to 50.3% compared to 48.8% at end December 2012 but still at a solid level, especially if adjusted for readily marketable inventory. Adjusted net debt/Capitalization stood at 30.8%. Leverage increased slightly to 50.3% compared to 48.8% at end December 2012 but still at a solid level, especially if adjusted for readily marketable inventory. Adjusted net debt/Capitalization stood at 30.8%.


Recent developments since 14 May 2013:

  • On 2 August, Noble announced the closing of a US$505 million two year committed revolving letter of credit and guarantee facility. 10 banks participated in the facility and the facility was arranged on a club basis.
  • On 20 June, Mr. Richard Margolis was appointed  as an Independent Non-Executive Director. Mr. Margolis is a former diplomat, investment banker and businessman with more than 30 years experience in Greater China.
  • On 14 May, Noble announced the closing of US$2,055 million in revolving loan facilities. The facilities comprise a US$1,017 million 364-day committed unsecured revolving loan facility, a US$488 million three-year committed unsecured revolving loan facility and the arrangement on a club basis of a US$550 million three-year committed unsecured revolving loan facility. The transaction was very well supported by a broad group of banks globally with a syndicate of 72 banks spanning five continents. All amounts borrowed under the facilities have been and will be used for refinancing and general corporate purposes.
Some simple Financial Ratio Analysis:
  • Annualized ROE of 4.04%
  • Net Profit Margin of 0.22%
  • Annualized Asset Turnover of 479%
  • Equity Multiplier 3.88 X 
  • Annualized PE of 26.5 X 
My concerns on Noble is the deteriorating net profit margin which is mainly caused by the agriculture division negative operating income. I nonetheless do think that it could make a turnaround in coming years as the crushing plants are getting ready by 3Q 2013, hopefully. The soft commodities prices may remain at lower price compared to few years back, unless we face a poor harvesting caused by an unforeseen bad weather. 



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