Iceberg pours cold water on Noble rally

Commodity trader's shares fall 16.7% after Iceberg questions stock price surge following Sinochem investment rumours

Published Fri, Feb 24, 2017 · 09:50 PM


NOBLE Group's stock fell 16.7 per cent on Friday after a negative report from antagonist outfit Iceberg Research chilled optimism about a strategic investment by China oil and gas giant Sinochem.

The commodity trader's shares closed at 22.5 Singapore cents, down by 4.5 Singapore cents, after 623.4 million shares changed hands. That drop wiped out almost all of the gains that the stock had made since reports appeared on Feb 14 that state-owned Sinochem was in early talks for a possible investment in Noble.

Those rumours have not been confirmed.

Noble's Friday slide prompted a trading query from Singapore Exchange. Noble replied that, save for Iceberg's report, it was not aware of any undisclosed matter that could have accounted for the trading activity.

In its report, Iceberg questioned the surge in Noble's share price following the Sinochem speculation. Iceberg argued that Noble has been struggling to find a good strategic investor because of doubts over the value of its commodity contracts.

Noble has also been forced to sell some of its businesses to obtain capital because its contracts could not be sold, and has not made the management changes required to improve the situation, Iceberg alleged.

The report was the latest from Iceberg, a firm whose stated motto of "revealing financial manipulation and accounting frauds" has so far been overwhelmingly aimed at Noble. Since Iceberg's first report questioning the value of Noble's assets, the company has seen its share price fall 81 per cent, lost its investment-grade credit rating and had to swallow more than US$1 billion of impairments.

Asked to respond to the latest volley, Noble referred to its past announcements in which it has repeatedly rejected Iceberg's claims. The company will report its full-year results on Feb 27, and companies are typically tight-lipped just before announcing their results. Analysts that cover Noble were generally unmoved by Iceberg, with the focus trained on Noble's pending results announcement to shed more light.

"Results are coming out in the next few days," Morningstar analyst Lorraine Tan said. "It's still to be seen whether there's fundamental improvement that can be sustained. We definitely think liquidity conditions in the commodities market have improved, which should help Noble."

Ms Tan, who has a 17 Singapore cent target for the stock, said cash flow and Noble's access to capital are critical determinants of how much Noble can improve its business. Along those lines, a strategic investor that can offer access to capital would be a boost for Noble. "One of the keys to a good trading house is access to capital lines," Ms Tan said. "You can only grow your trading relationships if you have access to working capital."

DBS analyst Mervin Song said Noble's fourth-quarter profitability may still be under pressure because proceeds from the sale of its Noble Americas Energy Solutions unit were received only at the end of 2016, although the year ahead should be more comfortable.

There could be some impairment risk, however, given that auditors may test the reported value of assets, Mr Song said. His target price of 20 Singapore cents is under review pending the results.

In a note, BNP Paribas credit analysts observed that Iceberg's new report did not have "any new information", and opined that Noble's operations have been improving since 2016.

"We think that as liquidity stabilises and working capital constrains ease, Noble should be able to benefit more from increased coal, oil and other commodity prices in 2017 that they could not benefit from in 2016," BNP Paribas wrote.

The firm saw potential bargain opportunities in Noble's 3.625 per cent bonds due March 2018. "We recommend buying the 18s on a dip as we believe that cash levels at the company should be sufficient to pay off the 2018 bonds," BNP Paribas wrote.

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