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Would Benjamin Graham Buy Noble Group?

Managing a portfolio of supply chains covering a range of agricultural and energy products, metals, minerals and ores across 140 locations, Noble Group (SGX: N21) is very much a global company.

The company facilitates the marketing, processing, financing and transportation of essential raw materials.

Noble sources its commodities from low-cost regions such as South American, South Africa and Indonesia while supplying high-growth areas particularly in Asia and the Middle East.

Listed on the Singapore Stock Exchange 17 years ago, Noble was included in the Fortune 500 nine years later and is a component of the Straits Times Index (SGX: STI). The company is currently valued and just over S$8b.

Noble boasts a whopping S$12b worth of current assets. However, with current liabilities similarly large, the company’s current ratio stands below 1.5. Ideally, a value investor of Benjamin Graham’s ilk would seek this ratio closer to two, which could indicate that the company is in better control of its liabilities.

The price to book ratio can also be used to gauge the margin of safety in an investment. Standing at 1.2, Noble’s price to book doesn’t confer much of a safety net. But no one would expect to rely on this insurance when investing in a company of Noble’s magnitude.

More disheartening for value investors, though, could be the earnings yield, which at only 3.6%, is low. This prices the company at around 28 times its earnings, which is twice the market average. The dividend yield on offer of 0.8% is similarly unsatisfying, when you consider a risk free rate of return of three times this could be achieved.

What may also worry value investors is the contraction in net income at Noble over the last few years. Whilst income is set to rise year on year for 2014, profits are down from a high of S$918m in 2011 to just S$343m last year.

Considering the company’s target market, the economic slowdown in China could be more cause for further concern. But value investors are less concerned about macroeconomics than company fundamentals.

On its metrics and measures of value alone, Noble certainly does not seem cheap. Neither does it appear to offer decent rewards at low enough risk to tempt value investors.

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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 Adam Kuo doesn’t own shares in any companies mentioned.