Noble Group Limited - MANAGEMENT REPLY: Has its agriculture business turned around?

8/12/2014 – Noble Group CEO Yusuf Alireza has hailed the company’s record revenue and volume for the first nine months of the year, even before the partnership with COFCO, X2 Resources and Harbour Energy have kicked in.

He added that Noble has the strongest balance sheet in its history and management is focused on ensuring that it maximizes the opportunities it sees in the products and countries it operates in.

DBS Research maintained its BUY call with a target price of S$1.60 as it believes that disposal of its 51% interest in Noble Agri and a move towards an asset-light model will result in higher return on equity (ROE) and, thus, act as a re-rating catalyst for the stock.

OCBC Investment Research upgraded the stock to BUY from HOLD but its fair value is unchanged at S$1.30 as it made no changes to its estimates.

The company just announced earnings for M9 FY14:

Revenue: +4.4% to US$64.8 bln
Profit: +192.9% to US$372 mln
Cash flow from operations: (US$358.3 mln) vs US$302.6 mln
Special dividend: 0.03 US cents per share vs Nil

Noble's profit trebled on record revenue and volume of 196 mln tonnes.

Operating income from supply chains also reached an all-time high of US$1,171 mln thanks to contributions from across the group’s segments.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Has its agriculture business turned around?

Noble's agriculture business posted an operating income of US$79 mln in Q3, versus losses of US$0.3 mln in Q2 and US$42 mln in Q1.

This was mainly due to a better performance from its Grains & Oilseeds division which saw some recovery in crushing margins in both China and South America.

The segment also reported strong volume of 20.7 mln tonnes versus 10.9 mln tonnes in Q3 FY13.

Management Reply: We would not comment on trends from quarterly figures which are meaningless in a seasonal business such as agri.

Question

2. Why did it declare a special dividend?

Noble’s special dividend of US$0.03 surprised the market.

Shareholders will be happy.

However, we couldn't find a reason for special dividend in company filings.

Was it due to US$64.8 mln of profit booked from the sale of its 51% stake in the agriculture business to COFCO?

Or has the dividend policy changed and we can expect this sort of dividend in the future?

Management Reply: The profit booked on the sale of 51 per cent to COFCO is shown in the cash flow statements and is taken as income to the profit on supply chain asset line. It is not USD 64.8 million which was an estimate from April. It was USD 246.4 million as per cash flow statement. The dividend is a partial return to shareholders of this money.

(Read the full story to get all 5 questions)

We thank the management for its response.

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