Noble's prize for (market) economics

Noble Group increases its attraction to shareholders through an investor driven share placment.

Noble Group completed an S$42 million ($24 million) share placement yesterday, on the back of strong investor demand for its stock after announcing record profits last week. The sale of 30 million new shares was priced at S$1.40, a roughly 7% discount to the weighted average traded price of Noble shares on 24 February. Cazenove Asia managed the placement.

The sale comes barely a week after Noble announced record results for 2002. The Hong Kong based and Singapore-listed firm had an extraordinary year in which turnover rose by 61%, profits rose by 37%, EPS rose 29%, NAV increased by 21% and the dividend increased by 25%.

This prodigious performance is all the more remarkable given that Noble is a commodities and resources trading company, at the whim of global demand cycles. Given that 2002 was a difficult economic time for nearly every country in the world, Noble's success has clearly attracted some attention.

According to Richard Elman, the CEO of Noble, the decision to undertake the placement came after lobbying by institutional investors who wanted a chance to buy into his company. There are few companies in Asia that would say the reason they are selling new equity is to increase the liquidity of their stock for minority shareholders. But looking after shareholders has become an attribute that Noble is keen to be known by.

"We also wanted to take this opportunity to bolster our balance sheet. A window opened and we took advantage of it," Elman says.

Over 30 institutions took part in the placement, taking Noble's free float up to 30% of its outstanding share capital. Of those buyers, Elman estimates that "virtually all" of them were new investors in the company. "It is very gratifying to see so many new names in the register," he comments.

The company will use the proceeds for general working capital. Given that one of Noble's main traits is being asset light, it is doubtful that this money will be used to buy new capital equipment. Rather, if it is being used to pay down debt, bringing gearing from 88% to 62.5%.

However, the company's earnings per share in 2003 will be roughly discounted 4.3% by this move, although given the 7% discount, the placement is still value accretive for shareholders.

A 7% discount appears about right for a small company with a relatively illiquid stock. Although a recent comparable is Huan Hsin, a Taiwnese electronics company listed in Singapore which did an $18.2 million placement on February 13 at a 4% discount. However, for Noble, the S$1.40 placement price was the highest price the shares had ever traded until last week when the results were announced.

The stock has risen 66% in the last year and now trades at 9.2 times 2002 earnings, a big discount from the 18 times earnings of the Singapore market average or the almost 15 times earnings of the Hong Kong market average. "We are starting to become fairly valued," Elman concludes.

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