Hot stock: Noble shares crash again on worries of long-drawn recovery

SHARES of Noble Group crashed again on Friday, a day after the beleaguered commodity trader posted a surprise loss for the first quarter and downbeat remarks by outgoing chairman pointed to a long-drawn recovery process.

At 9.56am, the counter dived 23.4 per cent to 67 Singapore cents on hefty volumes of 68.65 million shares. A 10-to-one share consolidation had earlier brought the shares to trade above S$1.30 this week.

In its results released after the market closed on Thursday, Noble said the net loss of US$129.3 million in Q1, against a net profit of US$40.5 million a year ago, was due to a challenging market environment.

Richard Elman, who stepped down as chairman of the group he founded three decades ago, told investors on Thursday that they should not expect a return to profits anytime soon, though he reiterated an existing target of returning the group to profitability by 2018-19.

Blaming the surprise Q1 loss on a dislocation in coal markets and higher oil prices, the group said it will continue to focus on cutting costs and ensuring a disciplined management of its balance sheet and liquidity.

Taking over as the new chairman at Noble is independent non-executive director Paul Brough, a retired senior partner of KPMG. Other board changes were also announced.

DBS Equity Research maintained "hold" on the stock but cut the target price to S$0.94 from S$2.30.

Analyst Mervin Song noted that though the market consensus is a return to profitability over the next two years, the change in market structure of the coal market, flattening of the oil forward limiting the contango carry trade as well as higher costs of borrowings may delay the recovery in profitability expected by the market.

"While Noble's share price now trades at a significant discount to book, there are limited near-term catalysts to trigger a re-rating of Noble's share price," Mr Song said. "There is risk that losses may continue due to the inability to effectively hedge the price risk in its coal business, and still negative operating cash flows. Furthermore, there are questions surrounding Noble's ability to secure sufficient liquidity from its key banks."

But that said, a potential investment by a strategic partner such as Chinese conglomerate Sinochem, as speculated by various press reports, may provide confidence to investors and bankers about the strength of its business model and value of its assets, and "may act as the potential circuit breaker and help trigger a re-rating of the stock", he added.