Noble Group must stop being conservative in putting capital to use

It's time for more M&As.

According to Nomura, 3Q12 earnings significant miss on SGA and energy margins Noble staged a weak 3Q performance, almost half Street estimates. The results against our and market expectations were mostly dragged by a high SG&A ratio, weak energy margins and a lack of any significant recovery in agri markets.

Here's more from Nomura:

The agriculture segment GP/mt in 3Q12 was almost in line with our estimate of USD8/mt on improved utilisation of the sugar business in Brazil, but the crushing business in China remains weak (the outlook for crush margins is muted as well for the rest of the year).

The key disappointment in our view was energy margins which were down sharply sequentially. Volume growth was solid across both energy and agri, and MMO continued its volume recovery.

Catalyst: Balance sheet and M&A in focus
Management commentary clearly indicates that Noble is looking at acquisition targets. It has been ramping-up its balance sheet (USD1.3bn cash balance, adj net gearing of 0.35x).

In our view, an attractive asset purchase would be a positive catalyst as Noble has been conservative in putting capital to use. To add, cost of funding should improve as the company retires 8.5% USD500mn bonds next year.

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