Monday, May 15, 2017

I Finally bet on Noble!

I finally gather enough interest and guts to place a small bet on Noble. I bought 10lots at 60.5 cents a share yesterday. I have previously made a quick trade with Noble years ago and made some small profit. After which I have not touch it but it remains in my radar out of curiosity as it amazes me how a company can collapse so quickly.It make for good case study.

I am going into this with my eyes wide open and totally cognizant of the prospects that there is a reasonable probability that is  company going into chapter 11 in the near future. The next few quarters are critical.

Why do I made such a risky bet albeit a small amount? Firstly, as I read the out going chiarman and founder letter to the media, I got this impression that he is making one final bid to save the company he has so paintakingly built over the last thirty years.He is stepping aside for a new chairman is who is old hand in extracting value out of companies at risk of failing.Elman is a proud man but the last two years of trials and tribulations hace exacted a deep toll on the man and he has come to terms with acknowledging the incipient risk of Noble very existence. The incoming chairman is not new to Noble as he has been in the board for the last two years or so so there will be no steep learning curve. He will be quick off the block.  Being a highly experienced and connected person, I do not think he will consent being the chairman if he think the company is going into bankruptcy in the near future.

Secondly, much of Noble recent woes stem from the fact that it did a consolidation of 10-1 of its shares and more significantly the current quarter unexpected loss of US$130m due to hedging risks of it coal portfolio.I gave no problem with the consolidation as I did not own any shares previously and I am of the opinion that it is positive as it remove some of the ease to short the stock.As for the hedging loss, I understand it is more a divergence of the Newcastle index where the hedges are reference with the chinese index.It appears to me more like a unforseen distortion (probably manipulated by hedge funds) which can be corrected BUT I may be wrong.

I look at the factsheet and Noble now mostly have current assets viz-a-viz non-current assets in line with it vision to drive the company back to its roots as a smaller and nimbler trading company. According to the factsheet, it has an equity of US$3.8b on 1.3b outstanding shares. Work out to be about $3/share and about a p/b ratio of 0.2 (based on my purchased price). Of course I have read many comments online that all these figures are fluff and the company now really has nothing left in its equity.I do not object to such opinion based on Noble track record over the last 2-3 years.There may be  a grain of truth in what these naysayers are saying.

At the end of the day, there is no certainty in investing especially with one like Noble but I am betting against the chance that a once blue chip company with a valuation in excess of $10b can be reduced to nothing. 烂船也有三斤铁

I hope I am not wrong but I am prepared to lose my capital on this one.

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