Noble Group

Its strange that nobody raised this up for discussion yesterday.
I like this acquistion.

SINGAPORE/SAO PAULO - Noble Group, Asia's biggest commodities trader, said on Monday it would pay US$950 million for two Brazilian cane mills, raising its crushing capacity by 84 per cent in the world's largest sugar exporter.


The Singapore-listed company already has two mills in Brazil, where it operates as a major sugar trader. The construction of one of them has just been completed.

Noble and other agribusiness giants including Bunge, Cargill and, more recently, Glencore have made the jump from sugar trading to physical production, eyeing bright long-term prospects for the sector.

'The acquisition of Cerradinho will propel the group into the top tier of sugar cane milling companies globally, taking the combined annual potential crushing capacity that Noble will control to 17.5 million tonnes,' the firm said in a statement.

The two mills, which are being purchased from Brazilian sugar and ethanol group Cerradinho, are located in Sao Paulo state, which accounts for 60 per cent of Brazil's cane crop.

Catanduva has a nominal annual cane crushing capacity of 4.6 million tonnes while Potirendaba crushes 3.4 million tonnes per year. The two mills will have combined production of up to 600,000 tonnes of sugar, 300,000 cubic meters of ethanol and supply over 300,000 megawatt hours of electricity to the grid.

Catanduva also has a sugar refinery.

'The physical proximity of the four mills that Noble will own after this acquisition offers significant economies of scale,' the company said.

Consolidation
Family-owned Cerradinho was seeking a minority shareholder as part of a broader corporate restructuring. In November, BP bid for a stake in the group, but the deal was rejected, and talks with Noble and other firms resumed.

The transaction will leave the Brazilian group in possession of only a single mill.

Brazil's sugar and ethanol industry has been through a wave of consolidation in the last two years, in which big firms bought out smaller ones drowning in debt. Many had borrowed heavily prior to 2008 in a period of euphoria about the sector's prospects but struggled during the credit crunch.

The situation left a handful of distressed players that had previously been considered overvalued, and larger companies with more cash snapped up some of the mills no longer able to carry out their ambitious expansion plans.

Earlier this month, Swiss-based commodities trader Glencore bought a stake in Brazilian mill Rio Vermelho, its first investment in the cane sector.

Noble also operates grain-crushing facilities, coal and iron ore mines, fuel terminals and storage facilities, vessels and ports. In Brazil, it has a coffee-processing plant in Minas Gerais state and warehouses, besides port terminals. -- REUTERS

This together with the Sempra acquisition should boost its earnings (and margins) in the following year. Noticed the latest acquisition reported a FY profit of US$64 million.

I think Noble Group is a good example of a company with super low margins and yet an extremely high barrier of entry. But I wonder will such acquisitions boost its operating cash-flow in the near future ?

(Not vested in any commodity supply chain managers)

I don't like Noble Group for its very high leverage and very low margins. But this is just a personal view. I will not feel safe investing in such a company as I do not understand its business model well enough and the risks.

I believe d.o.g. did discuss Noble in great detail some time back. Not sure if that thread is lost forever to the great stock market in the sky....

I am looking at its strategy of expanding into the agribusiness industry.
Perhaps I am not well versed in this industry but I see great potential in couple of yrs down the road at the minimum.

I agree with the fact that Noble business model is highly leveraged. Maybe its due to its agressive expansion ambition? Thus, it does what it is so.

Not vested, but getting keen. Sniffing ard its competitors too.

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(21-12-2010, 01:53 PM)Nick Wrote: I think Noble Group is a good example of a company with super low margins and yet an extremely high barrier of entry. But I wonder will such acquisitions boost its operating cash-flow in the near future ?

To me, my humble opinion is yes.
At least the sugar acqusition should prove profitable in the intermediate but perhaps not near future.
Disclamier: I yet to take a serious look at the acquisitions' profitability thus, cannot verify if its a good deal.

What I can acknowledged is that next year onwards, your kopi-o and teh-si will increase in price at your humble neighbourhood kopitiam.

Cheers.

I dug up Noble's 3Q results statement to examine its balance sheet strength at the moment.

Debts
Short Term Bank loans: US$843 million
Convertible Bonds: US$306 million
Long Term Bank Loans: US$2,099 million
Senior Notes: US$2,678 million

Total Debt: US$5,926 million

Liquid Assets
Cash: US$2,187 million
Readily Marketable Inventories: US$2,712 million

Total Liquid Assets: US$4,899 million

I am not too sure how the latest acquisitions will impact its balance sheet. Wasn't it planning to dump some assets into Gloucester previously ? The balance sheet isn't terrible. It looks like a pretty normal balance sheet for high growth companies. Take note that the bulk of the Senior Notes are due in 2015 and 2020.

Noble's probably one of the few companies which can classify its entire inventory as "liquid assets". For most other companies it is excluded from computation of quick ratio when it comes to liquidity.

If one wishes to be very conservative, remove the inventory from Noble's computation, or give it a haircut of say 20-30% (for fire-sale) when valuing the company.

Not vested.

(21-12-2010, 02:45 PM)Musicwhiz Wrote: Noble's probably one of the few companies which can classify its entire inventory as "liquid assets". For most other companies it is excluded from computation of quick ratio when it comes to liquidity.

If one wishes to be very conservative, remove the inventory from Noble's computation, or give it a haircut of say 20-30% (for fire-sale) when valuing the company.

Not vested.

Its inventories are easily marketable - there are exchanges dealing with coal, iron ore, grains etc. Since the price are available in major exchanges and can be easily liquidated (like stocks), they can be computed. It is not like pieces of wooden tables or clothes or vessel equipments which are not very fungible.

Inventories of the Group include readily marketable inventories (hedged or pre-sold) of US$2,712,121,000 (2009: US$3,248,937,000), of which
inventories in transit to customers amounted to US$262,885,000 (2009: US$716,927,000). Readily marketable inventories are certain
commodity inventories which are readily convertible to cash because of their commodity characteristics, widely available markets and
international pricing mechanisms.

Unless I am mistaken, a commodity trader wouldn't be holding on to such inventories for a long period of time. They will use short term loans to purchase raw materials and sell it to other companies and profit from the spread. So don't think fire-sale will come into the picture unless commodity prices plunged rapidly and the counter-party refuses to accept delivery.

Personally, I think it is extremely difficult to analyze such companies due to their sheer size. I guess an investment in Noble is simply a macro bet on commodities and an analysis will be more on whether the company can stay alive for the next 5 years in order to be a proxy for any commodity movement.

I am not very knowledgeable in their operations so perhaps forummers vested in Noble or Olam can share their views

(21-12-2010, 02:51 PM)Nick Wrote: Personally, I think it is extremely difficult to analyze such companies due to their sheer size. I guess an investment in Noble is simply a macro bet on commodities and an analysis will be more on whether the company can stay alive for the next 5 years in order to be a proxy for any commodity movement.

Given a commodity industry where most commodities are interchangeable, I would say the differences boils down to their pricing mechanism.

This would bring into the picture of bargaining power of buyers, not suppliers for commodities industry, unless one is in a oligopoly or monopoly situation. Even so, commodities are highly cyclical to economic cycles thus it can be a value buy at certain points and become a "growth" stock at others.

But using relative valuation, we can see historically which firms coul better manage investors' capital and their leverages.Personally, I don't see much chance of Noble collapsing given CIC's backing behind it.

Cheers

Yes I agree with Nick. Noble is too tough a company for me to analyze. Perhaps someone with sufficient knowledge and skill in valuation can achieve a better appreciation of the Company by undertaking a proper, diligent appraisal of its investment merits.

I remember there was someone from the previous Wallstraits forum who was vested in Noble and did quite a thorough job on analyzing the company. Can't for the life of me recall his nick at that time. All I remember was that he's quite a young chap.