Why Noble's agri division could be starting to bear fruit

It could be a key catalyst in next 2 years.

According to Nomura, Noble's agri division has gone from being the key focus (and 40% contribution to op income in FY10) to loss making in the last 3 years – primarily driven by sugar, cotton and grains.

However, with sugar prices at cyclical bottom and utilizations on the up, Nomura believes Noble’s Agri division could be a key catalyst over the next 2 years.

Here's more:

We met with Noble’s management to get an update on its strategy. Apart from touching upon rumours of potential JV on Agri assets, management also reiterated its focus on an asset-light business model, focus on supply chain pan verticals, clarity on plans in the energy segments and intent to remain investment grade.

In our view, Noble remains attractively valued and FY14 could see a significant rebound in earnings led by sugar. Any monetization of Agri assets (at right valuations) could act as a catalyst, in our view.

Management admitted that it is talking to an interested party on Agri but emphasised that by no means does it want to sell out and that no deal has been reached yet.

Management indicated that whatever it does will be consistent with its three-pronged strategy of building an asset-light model, focusing on China/Asia demand and de-risking and faster execution of assets/strategy.

At the same time, we believe Noble doesn't need to own 100% of its Agri assets and we may see a deal with Noble holding joint control of these assets to ensure supply chain access.

Its hard commodity businesses (including power and gas business) are ramping up well, with Noble maintaining market share in coal, building out in non-ferrous metals and oil (has hired key management here), looking to capitalize on market opportunities in iron ore (for example if India lifts exports ban) and consolidating its Aluminium business.

At the same time, Noble is also organically expanding its power and gas platform across the US and Europe.