Noble to maintain its impressive growth momentum: Kim Eng Research

Event
Glencore International has just finished its bookbuilding exercise, raising US$10b in the world’s biggest initial public offering this year.

Perhaps this contributed to the recent share price weakness of Noble Group, as the market was concerned that funds might switch into the former. In our view, such anxieties are unwarranted given the strong interest in commodity traders.

Our View
The IPO price of 530 pence per share values the Switzerland‐based Glencore at US$60b. This implies a historical FY10 PER of 16x, and according to market estimates, approximately 10x FY11F PER. At first glance, it would appear that Noble is trading at an unfavorable FY11F PER of 15x. However, there are differences between the two companies that may warrant this gap.

Glencore’s core business is commodity trading, like Noble. But it has greater exposure upstream, especially in the mining arena where it owns a 34.5% stake in Xstrata. This stake is worth US$24b or 40% of its market capitalisation. Excluding Xstrata (miners typically trade at a lower valuation), we estimate Glencore trades closer to Noble at about 12x FY11F PER, but with little track record as a listed company.

Furthermore, we do not think Glencore‐Noble is an exclusive trade, given the keen interest and scarcity premium for commodity traders with less exposure to commodity prices, eg, the structurally‐long upstream companies. Cornerstone investors for Glencore include the Abu Dhabi sovereign fund and the Government of Singapore Investment Corporation, while China Investment Corporation (CIC) and Korea Investment Corporation (KIC) are significant shareholders in Noble.

Action & Recommendation
We reiterate our BUY call on Noble and expect the group to maintain its impressive growth momentum of 25% CAGR for the next three years. Our target price of $2.75 is pegged at 20x FY11F PER.