Noble Group spin‐off may not pull through

Event
Noble Group announced earlier this month that it might spin off its agribusiness for a separate listing on the Singapore Exchange. Though the market has touted the move as a positive re‐rating catalyst, we are not too excited about it. Given the current uncertain market environment, we think the spin‐off might not even happen.

Our View
Noble has not divulged any other details about the spin‐off nor the rationale behind it. But we can think of two reasons. The first is to secure better valuations for the group as a whole and the second, to recycle capital from the agribusiness which currently forms the bulk of group assets. We estimate the agribusiness will account for 40% of Noble’s FY12F operating earnings.

Among its peers, Noble is unique for its positioning in both the agribusiness and hard commodities business. By slicing it up, the agribusiness will resemble average. Its hard commodities business will resemble that of Glencore, which currently trades at a discount to Noble. Thus, overall valuations may not be lifted this way. Another consideration would be that management would have to have more disclosure for agribusiness financials.

Capital recycling makes sense given Noble’s intention to remain asset‐medium. However, the current environment seems none too conducive for a listing with several proposed initial public offerings already shelved. We argue that the more opportune time to extract value this way is during an upcycle, be reinvested in new projects.

Action & Recommendation
Nonetheless, even in its current form, we see Noble as an attractive long‐term growth story. Despite persistent market risks, its current valuation of 1.5x P/B represents and Maintain BUY.