Gross profits robust. All its key segments except for Metals, Minerals & Ores (MMO) posted higher gross profits in FY08. Agriculture was the strongest segment with a 117.5% growth. In contrast, MMO weakened by 28.5% due to sluggish demand for metals following the global economic crisis. Much of the year's growth was concentrated in 1H08. Growth momentum tapered off in 2H08 as the economic crisis struck, painting a less rosy outlook for 2009.
Balance sheet remains healthy. Noble's financial standing remains strong. The group has emerged to a net cash position (after adjusting for readily marketable inventories). Its financial strength is good (net cash) vs. its peer Olam with an adjusted gearing ratio of 0.74x. Noble's cash position improved to US$1.3b in Dec 08 (vs. US$0.7b a year ago), more than sufficient to cover its short term debt of US$0.5b. We expect low commodity prices to ease working capital requirements in FY09. Debt profile is also healthy with 80% of debt possessing maturities in excess of 18 months.
In good shape to ride out the storm. Noble has proven its resilience by performing well against a volatile backdrop in 2008, but it is not immune to the global economic downturn. Tonnage eased in 2H08 as the credit crunch led to a drought of Letters of Credit (LC) and counterparty risk grew more pronounced. This situation is likely to persist in 2009, and in the absence of counterparty credit insurance, we expect business activity to remain suppressed. We have trimmed our FY09 earnings estimate by 18% and expect core earnings to contract by 20%. Noble has announced an offer to acquire Australia listed Gloucester Coal for US$201.5m. It has the financial muscle to carry out an all-cash purchase given its robust US$1.3b cash position. We maintain our BUY rating, but ease our fair value estimate to S$1.33 (from S$1.58) on lower earnings forecast.
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