When we talk about companies in the global supply chain for commodities, Noble Group (SGX: N21) and Olam International (SGX: O32) are two that would easily come to mind. However, thinking of them in an undifferentiated way just because they are both ‘commodity supply chain outfits’ can be a mistake – they do have their key differences. Let’s take a look at some of them. It’s not just agriculture for Noble Olam has prided itself as an important player in the global supply chain for food (i.e. agriculture). Noble Group on the other hand, has a more diverse…
However, thinking of them in an undifferentiated way just because they are both ‘commodity supply chain outfits’ can be a mistake – they do have their key differences. Let’s take a look at some of them.
It’s not just agriculture for Noble
Olam has prided itself as an important player in the global supply chain for food (i.e. agriculture). Noble Group on the other hand, has a more diverse business. Besides being part of the supply chain in the agricultural sector, Noble also distributes energy products (like coal for instance),metal, minerals and ores.
In fact, agriculture is the smallest division within Noble in terms of both sales and profit contribution; the energy segment is the most important part of the company. For instance, in 2013, revenue and pre-tax operating profit from the energy segment was 66% and 98.6%, respectively, of the company’s corresponding figures.
Meanwhile, Olam mainly operates in the agriculture space and segments its business in the following way: 1) Edible Nuts, Spices & Beans; 2) Confectionary & Beverage Ingredients; 3) Food Staples & Packaged Foods; and 4) Industrial raw materials.
Investors need to take note that although the two companies are both in the commodities supply chain business, the actual products they carry and services they provide are very different in nature.
Different sovereign links for both
Interestingly, both companies have the support of government-linked investment funds. Noble has the China Investment Corporation as one of its largest shareholders while Olam is majority owned by Temasek Holdings, Singapore’s sovereign wealth fund and one of the largest of its kind in the world.
This might help us understand the difference in possible growth areas for both companies in the future. Noble’s ties with the Chinese government, for instance, might be helpful in the company’s quest to expand in China.
Both Noble and Olam have complex global operations that involve the efficient distribution of many different types of commodities around the world. Due to the nature of such businesses, both companies would require a high debt level – for instance, from the latest financials of both Noble and Olam, they have net debt (total cash & short-term investments minus total cash) to equity of 84% and 204% respectively – in addition to seeing their corporate results tethered closely with prevailing commodity prices.
Besides an understanding of the differences between Noble and Olam, it is also important for investors to understand the similarities which are namely, a high dependence on commodity prices in addition to having very highly leveraged balance sheets.
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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 Stanley Lim doesn’t own shares in any companies mentioned.