Reaping the harvest: Noble Group on profit upswing after agribusiness closure

Double-digit ROE seen in 2015.

The Noble Group is finally reaping the fruits of its hard labor. After disposing 51% of its loss-generating agribusiness, the group is is finally estimated to generate a double-digit ROE in 2015.

This is a welcome change after Noble registered four straight years of sub-par returns. According to Barclay’s, the upswing also rides on the back of a slew of deals for its energy and MMO businesses.

“The disposal of 51% of its agri business, which is to complete in 2H14, and a raft of deals for its energy and MMO businesses predominantly aimed at securing offtake volume should focus investor attention to the longer term,” noted the report.

Here’s more from Barclay’s:

We estimate that Noble could again generate a double-digit ROE in 2015 after four years of sub-par returns while it prospective BVPS of 1.2x would imply a discount of 30% to its historical average.

We see two ways in which the disposal could increase Noble's earnings: 1) deconsolidation would likely boost its bottom line as we expect the agri business to be loss making even in 2015 (US$100mn loss in 1Q14) and 2) the proceeds from the sale as disclosed at US$1.5bn would lower its financing costs. Both of these are capable of adding US$0.023 to Noble's EPS, which would equate to about 22% of our base case estimate for 2015.