Hot stock update: Noble shares rebound on PwC's positive assurance on valuation approach

NOBLE Group shares staged a strong rebound on Tuesday, buoyed by assurances from PricewaterhouseCoopers (PwC) on its "mark-to-market" valuation approach for long-term commodity derivative contracts.

At 10.04am, the stock has jumped by 8.6 per cent to 63 Singapore cents after a hefty 135.6 million shares changed hands.

UOB Kay-Hian executive director Chan Tuck Sing noted that the PwC report released on Monday gave some degree of assurance on the reliability of Noble's valuation approach.

"So that is positive. Of course, I suspect there will be some speculation there will be some deals involving the company since the shares have been depressed. Some positive surprises in that area cannot be ruled out," he said, referring to Noble's recent comments of being approached by suitors on potential financings and strategic and/or investment options.

"There have been a lot of shorts, so there is some short covering on this backdrop," he added.

Shares of the commodities trader took a beating since February, battled by accusations from anonymous blogger Iceberg Research and later Muddy Waters that it inflated the value of its assets.

To address calls for greater transparency, Noble engaged PwC to review the valuation of its contracts. PwC scrutinised 12 areas using 35 relevant criteria covering volumes, price, discount rates and reserves.

The "relevant criteria" that it used were developed by Noble's management based on relevant requirements of fair value measurement under International Financial Reporting Standards (IFRS 13) and standard practices for deriving mark-to-market (MTM) valuations.

"Overall, we note that Noble has adopted an approach to valuations which is consistent with the relevant criteria in all material respects," PwC said in its report. However, PwC recommended that Noble further strengthen its governance and oversight framework and improve its presentation of information.

Still, Iceberg Research fired another salvo at Noble on Monday, saying that the review failed to answer the market's concerns and that it "did not challenge the realism of Noble's assumptions for its mark-to-market".

Noble CEO Yusuf Alireza said in a teleconference that day to analysts and the media: "Any credible market participant that actually takes the time to read the full assurance report and the full management report cannot conclude what the market manipulator is trying to implicate."

The group reported a 5 per cent drop in net profit for the second quarter ended June 30 to US$62.61 million, with the main drag from its metals and mining segment and losses in associates.

This prompted OCBC analyst Carey Wong to maintain his "hold" call on the stock.

"In view of the bearish outlook for the commodities market in general, we deem it prudent to pare our FY15 estimates for revenue by 11 per cent and net profit after tax (NPAT) by 17 per cent (FY16 revenue by 6 per cent and NPAT by 11 per cent). This in turn lowers our fair value from S$0.69 to S$0.60 (now based on 9 times blended FY15/FY16F earnings per share)," he said.