Share Price: SGD1.035
Target Price: SGD1.07
China exposure a big concern
Noble has the strongest balance sheet among the commodity traders under our coverage.
One big concern for us is its substantial exposure to coal and iron ore, which are most sensitive to the change in China’s commodity consumption pattern.
Maintain HOLD and TP of SGD1.07.
Neutral for 2014
We maintain our HOLD rating on Noble with a target price of SGD1.07. Noble has the strongest balance sheet among the commodity traders under our coverage, shielding it from the threat of global liquidity squeeze. Our neutral stance stems from its vulnerability to the potential change in China’s commodity consumption pattern in view of its substantial exposure to hard commodities such as coal and iron ore. We expect Noble’s earnings visibility to remain poor in 2014. Longer term, ROE could continue to languish below its cost of equity before 2015. Although current valuation looks undemanding on a P/BV basis, we stay cautious until we see signs suggesting a potential recovery in ROE.
In 2014, we expect Noble to see brisk energy trading in North America, driven by higher demand for natural gas and shale gas. Its agricultural division should also see better performance on ramped-up sugar production capacity.
We anticipate two key downside risks in 2014: (1) weaker-than- expected demand for coal and iron ore, and (2) impairment loss on upstream mining assets due to persistently low commodity prices.
Publish date: 16/01/14