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Noble Group: Will It Reverse From An All-Time Low?

noble groupNoble Group (SGX: N21) is a diversified natural resources supply chain firm of 3 main areas: agriculture, energy and metals, minerals and ores. Its business model involves building low-cost sourcing capacity of key commodities from low cost regions (such as South America and Indonesia) and delivering them to destination markets of high demand growth (like Asia and Middle East).

Recently, Noble Group has dropped around 15% from the start of the year as compared to a negligible gain from STI Index (SGX: ^STI). It has even touched an all- time low of $0.95 last week.

So what contributed to its drastic fall in stock price? Let’s take a look at 3 possible factors:

  1. First quarter results were disappointing, with a 62% fall in earnings due to challenging environment which had eroded the margins.
  2. Soft commodity prices in the agricultural sector (sugar, soybean & sugar) causing razor thin margins for Noble.
  3. The company has highlighted a slowdown in growth of developing markets and regulatory risks as key obstacles for the company.

Despite this fall in Noble’s stock price, there are still some bright sparks ahead for the company. It is looking to become “asset-light” in the near future so as to reduce their capital expenditure (buying of land, machinery) and improve their free cash flow.  Commodity prices are also expected to recover next year.  Coupled with an expected expansion in volume, there could be better performance from the company in the longer run. Being an established firm, Noble Group is also able to raise debt financing by issuing notes and bonds at low interest rates; reducing the need to raise equity going forward, which may be potentially dilutive to existing shareholders.

Foolish Bottomline

Key potential risks still remain in the near term as the supply for commodities may outstrip the demand. On the other hand, it is notable that Noble’s CEO, Richard Samuel Elman, CEO has recently purchased 2.7 million shares of the company, so it would seem that he feels that the share price of the company will rise.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.