http://www.theedgemarkets.com/sg/ar...e-1q2015-earnings-not-cause-concern-jefferies
SINGAPORE (May 6): Noble Group got off to a good start in 2015 despite turning in a 30% y-o-y decline in 1Q2015 earnings, as its performance in the first three months was driven by recurring "business flows", an outcome that paints a more accurate picture of the company's long-term earnings potential, according to Jefferies Equity Research.
The Hong Kong-based commodities trader reported on Tuesday quarterly earnings of US$106 million ($141.4 million), compared to US$152 million a year earlier.
Included in the latest results was a loss of about US$50 million from Noble's agriculture joint venture, which is expected to do better in the "seasonally strong" 2H2015, Jefferies analyst Abhijit Attavar wrote in a note.
"Year-on-year comparison is a bit tough because Noble had an exceptionally strong 1Q14 due to strong contributions from its energy segment last year."
More importantly, Noble's 1Q2015 earnings of US$106 million did not include any one-off contribution from marked-to-market supply contracts, Attavar said.
"We find this encouraging as it better reflects the core earnings potential of Noble's supply chain business without distortions from lumpy marked-to-market gains."
Noble's substantial US$4.9-billion net working capital in 1Q2015, up from US$3.8 billion as at Dec 31, was a drag on cash flows, he said, but this is not a "big negative" as its total debt is still "reasonably under control" and it could potentially reap fair-value gains of US$1 billion if the oil contango trade reverses in 2H2015.
The jump in net working capital stemmed largely from "a substantial reduction of outstanding creditors" during the quarter, he noted.
"Noble management claims this was just a timing issue and there are no material changes to Noble’s payment terms with its suppliers.
"We believe this could also have been due to rationalisation of some inventory financing structures used by Noble Group earlier."
Jefferies has a "buy" call and $1.30 price target on Noble.
Noble shares were down 1.7% at 87.5 cents at 11:38am (0338 GMT).