What’s Behind Noble Group Limited’s 31% Crash In a Week?

Commodities trader Noble Group Limited (SGX: N21) closed at S$0.64 only last Friday.

But if you were to take a look at Noble’s share price now (2:30pm at the time of writing), you might want to be prepared for a mild shock – Noble’s currently trading at S$0.44, some 31% lower than where it was just a week ago with most of the damage being done yesterday (when Noble fell by 11.9% to S$0.52) and today.

What’s going on with the company?

A blueprint for descent

Noble’s fierce decline on Thursday had prompted stock exchange operator Singapore Exchange to issue a “please explain.” Noble came back with replies, essentially stating that it had no idea why its shares were falling. Singapore Exchange then subsequently issued a “Trade with Caution” warning for Noble’s shares.

But this is not part of the important points here. The first crucial thing here can be traced back to 15 February 2015, when the blogger, Iceberg Research, had issued the first of a three-part report that criticised many aspects of Noble, including its accounting practices.

After all three of Iceberg Research’s reports were released, the short-seller Muddy Waters joined the fray in April. Muddy Waters had issued its own report while also publicly stating that it’s short Noble’s shares (when you go short, you’re betting that the price of an asset will fall).

The “attacks” from Iceberg Research and Muddy Waters saw Noble’s share price fall sharply (from S$1.20 on 14 February 2015 to S$0.86 at end-April 2015) and to prevent an even more painful rout from developing, Noble went on the offensive.

The company started to aggressively buy-back its own shares. Earlier this month, Noble also engaged accounting firm Pricewaterhouse Coopers to conduct an independent review of its accounting practices.

The review’s currently ongoing, but Noble’s buy-backs had to stop. Under Singapore’s regulations, companies can’t buy-back their own stock in the two-weeks that lead up to their earnings announcement. With Noble scheduled for an earnings release on 13 August, the two-week period in which it’s banned from buying had started on Thursday, 30 July 2015.

It’d appear that the start of Noble’s black-out period may have been the cause for the huge declines in the firm’s shares we’re seeing now given that the presence of a large buyer of Noble’s shares (the company itself) can no longer be felt for a while at least. This, is really the first crucial thing.

The real McCoy

The second crucial thing – and arguably what’s even more important – is the investing community’s loss of confidence in Noble.

It’s been more than five months since Iceberg Research’s first salvo. But till date, despite the release of a number of statements and the slew of actions Noble has embarked on, there has still not been any solid explanations from the firm on whether it has been aggressive with its accounting in order to inflate the value of its assets.

It’s not unreasonable to suspect that many investors have decided to sit on the fences throughout this whole saga and not commit capital to invest in Noble because of doubts they might have over the firm’s accounting and other issues.

Noble can start the repair process for the reputational damage it has suffered these past few months only after it manages to remove most of the lingering doubts which exist over its business and accounting.

It will be a long and uphill battle for Noble and hopefully, the future release of the review report from Pricewaterhouse Coopers can mark a positive turning point for the firm.

Foolish Summary

Noble looks like a classic falling knife at the moment, in that there may be good reasons why its shares are falling.

A company like Noble, with more than US$80 billion in annual revenue, will be worth something. The problem is, without confidence in its accounting practices, investors may find that something very hard to pinpoint.

Would you like to chat more about Noble and other investing matters? If you do, come meet David Kuo and the rest of the Fool Singapore team on August 15!

Please join us at Invest FAIR Singapore on 15 August. (Suntec Centre, Booth B-16). Come chat with us at our booth, and see our MAS-licensed Director, David Kuo, give his official SGX investor presentation.

You won't want to miss this! Add Invest FAIR Singapore to your calendar today.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.