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The burden of Karma is heavy as Noble crosses the gates of death.

Noble Group has the symptoms of schizophrenia. Their delusion and demise were never “their” fault or caused by the actions of “their” traders.

Caught in-between and dancing on losses, the high rollers have painted it as because of : “liquidity constraint impacting trading and earnings generation”. For Noble Group “the problem” must be the exact solution, they have punted for working capital everywhere from the MD&A to the Press/Investor Communication and Strategic Review…

The financial statements* for the six months ending on 30 June 2017 eloquently sums up the financial substance of Noble Group:

  • Noble presents itself as a  $2B net equity company with an $1,45 MtM unaudited Gains on Derivatives company*
  • The trader has -$763 million negative OCF with a net debt increased by nearly $1B to $3.81B.

* unaudited.

The Energy Segment accounts for 90% of Noble Revenues in 1H-2017.

Noble Group Business

Noble Group Limited Revenues by Segment, 1H-2017

The Energy Segment traded at a loss of $226 million during 1H-2017 (excluding financing costs and salaries).

That’s more than -$1.25 million per business day… Monday to Friday but the business is run smoothly. Of course no.

But in the world of Noble shortlisters rush on a “bargain” 🙂

.

“Sale of Global Oil Liquids Sales process commenced with shortlist of bidders–bids expected in Q3 2017”

-Strategic Review Update–26 July 2017

Noble nasty.png

 

Investor Presentation Q2-2017 P.6

Out of Control

The Non-Performance of Global Oil Liquids should not be that shocking knowing the “Book now, think later” at the company. It lacks the management to impart performance.

Noble had two or three large take-of-pay deals in the U.S but the wind has changed as it always does in the physical energy markets.

The burden of Karma is heavy as Noble crosses the gates of death:

The hostile work environment includes daily vulgar and disgusting comments from male employees about vaginas, sex, male genitalia, and verbally abusive language using the word ‘f—‘ explicitly. constant abuse.”*

During 2012-2016, at the office in Stamford, Plaintiff’s seat was next to the gasoline traders which includes video conference cameras connecting with London and Houston offices.

The commentary back and forth on the Stamford desk for everybody within earshot to hear, frequently became vulgar and disgusting. This created a hostile work environment.

*Ramos V Noble Americas Corporation.

It is the last tango act of an unprincipled trader-assaillant.

Noble did the financial engineering for years and years and then the showgame broke. The typical assumption of a 40% recovery rate may indeed be too optimistic.

PwC has signed Noble’s Financial Statements but performance has inevitably caught up the accounting gimmicks.

Noble Group has generated negative cash-flows from the operations to the tune of

-$1600M in 2014
-$600M in 2015
-$900M in 2016,
-330M for Q-1 2017

and -433M for Q2-2017

A Toxic Legacy

Net fair value gains now stands at $1.455 billion as of end-Jun 17. 

fairtoarrive net equity of $2B* is still rather delusional for a company not producing any plus-value -Noble is losing operating cashflows at a rate between -3.5 and -$6.5M per business day in the recent quarters.

*unaudited financial statements.

Noble’s position is irreparably compromised. 

Noble group has no intrinsic value (by Discounted Cash-Flows).

The firm offers no viable future for patient capital.

Their leverage futures-physical trading model has too much impediments to break-even.


The Noble Files 贵族档案

 

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Noble Group: Anatomy of a Zombie Trader

Noble Group Says Listing Top Execs’ Pay Would Hurt Its Standing…

Noble Group Ltd., the embattled commodity trader, has pushed back against guidelines in Singapore for disclosing information on executives’ remuneration.

What  would hurt more Noble Group’ standing than the compensation of their Managing Directors that the company has refused to advertise in an exchange query: It’s shaky financials.

Noble Group has booked gains on these contracts to the tune of 102% of shareholder equity as of April 2017.

The company has unrealistically booked large profits on long-dated contracts ($3.6B), the value of which relies on input assumptions that are not market-observable…

Two small things to worry about Noble’s are the valuation and the uncertainty of the cash realization of these gains.

One of these gains booked is on a 10 years offtake agreement with Sundance Resources (problem: it’s a junior Australian miner with production starting in 2019 (opps!)

Noble has repeated that these contracts were correctly valued. Then in 2016, 48 hours before the publication of their FY15 annual results, Ernst & Young suddenly realized that these contracts had to be impaired by $1.1b.

At least if you were a buyer, you would expect to pay for assets generating positive cash-flows.

Problem is that Noble Group has generated negative cash-flows from the operations to the tune of and -$1600M in 2014, -$600M in 2015, and -$900M in 2016 (and I also reckon that its cash flows from operations didn’t even covered the cash interests expense of its debt service in Q2-2016…)

Noble group has no intrinsic value (by DCF).

It remains difficult to value them and put a ballpark price but no, the current price share doesn’t reflect the accounting issues and net equity issues of the trader.

OCBC bank and many analysts at brokerage houses bave simply stopped the coverage the company. Compliance officers now refuse them to cover the company on reputational risk.

It is also said in the market that the company is likely also good candidate for a downgrade by S&P.

The trader has lost its access to their counter parties in the commodity market because of stricter limitations to deal with them now. (must put down collateral to execute trades that in the past required none)

If one wishes to be very conservative:

Exclude the $1.6B inventory from its liquidity- it belongs not to shareholders but to banks and is used by Noble as the collateral to pony up $5B borrowings with the banks (because Noble Group also celebrates the envied 4th position among the top 10 commodity borrowers in the world…).

The cash realization of these gains:

Noble’s “Net Fair value on commodity and derivative instruments”. End FY 16, the net gain in fair value stands at 2,776,419,000 while end FY 15, it stood at 3,178,351,000.

Noble should have realized approximately 400,000,000 of gains, however cash flow shows its has only realized about 234,234,000 in gains (57% of the amount).

The valuation of these gains:

So one could conservatively remove the fair-value gains from Noble’s net equity computation, or give it a haircut of say 60%) when valuing the company.

Have you hear about something called inverse-leverage

The problem is that it cannot be done because a depreciation net fair value G/L gains on commodity contracts of -19% would render Noble Group insolvent and precipitate the Asian trader into liquidation.

The further that the coal API2 curve goes on the Bloomberg terminal is 5 years… I’m curious how does William Randall, Coal Kingpin Australian brainmaster of Noble Group pulls out a 30 years mark-to-market gains. what’s that !

Do people realize that IF Noble Group contracts were properly valued a long time ago a credentiate trader (such Castelton Commodities) or and investor (like Temasek) could have bought them out.

This said, the thought process at Noble isn’t very different from the rest of the industry peers (Glencore…)

e.g MDs in independent units, under minimal supervision have crafted positions that have bleed into outright wagers. With limited trading views, constantly fight the HQ to punt more working capital.

Their entrance in some commodity markets has been always marked by spectacular moves.

Their tactic has been volume is at any cost, throwing their weight around; (Noble Agri, Noble Americas…)

This has naturally created a pattern of brutal exits.

Noble Group 4th position on the top 10 commodity borrowers

Congratulations to Noble Group who now makes the top 4th position on the top 10 commodity borrowers list

Figure_1

With $5B, Noble Group makes the top 4th position on the top 10 commodity borrowers list. Cautionary tale:  We need to know with some precision what Noble are actually using the money for.

Noble is known remarkbly active in the financing market but less in the commodity market.

The struggled acquisition of Noble Agri by Cofco has shown how difficult it is to impose success to a company’s assets with a substantial booked value despite no acceptable performance and very few financial substance (if not any of it).

 

The Noble Files 贵族档案

More people doubt the revenues of Noble Group.

Noble Group inventory in-transit

Noble Group growth seems very artificial,  volume is at any cost in order to compel name recognition.

A great deal of criticism should be levelled at Noble Group for their lack of financial substance.

How can any trader in the world have an Inventory-in-transit of $2.6M for a  cost of goods sold of $48.524B ?

sales peers noble

If we believed Noble, by its revenues, the Singapore-listed trader would be a trading giant second to Mercuria, (company with traceable flows and assets).

However the revenue per employee of Noble’s peers, only brings more questions about the veracity of Noble Group reported revenues and volume.

noble employee per sales

The revenues/employee of Mercuria and Gunvor put Noble Group in the   88.4B$  revenues fork.

At $101M per employee and the sales of Mercuria, Noble would have estimated $8B revenues.

At $4.9M per employee and the sales of Gunvor, Noble would be a $8.4B revenues company.

The audited inventory-in-transit, the level of RMI, and the peers analysis both place Noble as a company with implied revenues 11X to 12X less than the amount reported.

It is not clear how Noble can claim a turnover of nearly $100B per year with an unaudited physical traded volume of 182 million metric tons (2016) and 183 million metric tons (2015).

Noble is known very active in the financing market.

Yet no evidences have suggested that the physical operation of Noble  possesses any of the hallmarks normally associated to one of the largest commodity trader (chartering of ships and by tonnage)…

Noble Group has generated negative cash-flows from the operations to the tune of

-$900M in 2016,

-$600M in 2015

and

-$1600M in 2014.

Worse, the core of its booked net equity which is 102% of fair value gains/losses booked on assets.

How a company with no acceptable performance can still present a net positive equity of $3.92B ?

With $5B, Noble makes the top 4th position on the top 10 commodity borrowers list.

Figure_1.jpg

TXF data

Cautionary tale:   We need to know with some precision what Noble are actually using the money- for ato-arrive net-equity” that the trader has  to continuously re-finance.

The struggled acquisition of Noble Agri by Cofco has shown how difficult it is to impose success to a company’s assets with a substantial booked value despite no acceptable performance and very few financial substance (if not any of it).

Noble is known as remarkably active in the financing market but less in the commodity market.

These anomalies only reinforce our belief that Noble is not even close to one-fifth of the $97 billion sales company it touts to be.

The Noble Files 贵族档案

Noble, from Speed boats to Hypersonic Missiles.

The Transit Time on Colonial Pipeline, if you go from one end to the other (Houston to New York) is about 16 days.

Most of ship voyages in Asia are less than 10 days but apparently this is too much for Noble Group.

seanergy-maritime-capesize
Are Conventional Ships now too slow for Noble Group Ltd  ?

At an average of 10 days shipment and at with a cost of the goods sold(COGS) of $48.58B FY16, the average inventory in transit recorded by Noble would have to be at least $1.256B , problem is that the audited number is only $2.6M FY16.

FY2015 the average transit time of Noble was 3.5 days.

FY2016 The average transit time of Noble, is now 0,019 days. It either implies that Noble has used hyper sonic missiles or that the corporation has a COGS inflated by 10 to 15 times in 2016.

If Noble, has always self-proclaimed itself as a corporation of +1000 employees working on busy trade floors, even more doubt their revenues.

Yet, none of the evidences suggest that this operation possesses the normal footprint associated to one of the largest commodity trader.

They have gone from cargoes put in the speed boats with the Elmans… to the Mach 5  speed with captain William Randall.

Noble Group inventory in-transit.png Audited Financial Statements 31 December 2016

The Noble Files 贵族档案

Noble Americas Energy Solutions: Is Noble framing a situation different from the reality ?

If you were sitting on a trading desk like Noble Americas Energy Solutions, expecting power prices to follow record loads last summer, you would have been be sorely disappointed.

In August, Peak power prices for ERCOT, during the record demand, averaged near mid-$40s/MWh, hardly a level one might expect when compared with events in the past as prices were seen moving up and sometimes in the $400s/MWH territory for real-time markets.

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THE ENDANGERED BUSINESS MODEL OF NOBLE AMERICAS ENERGY SOLUTIONS:

In most cases, when a market is short on supply, this situation presents an opportunity for someone like NAES to step up to fill in a gap.

-Short-term contracts that typically involves scheduling in the day ahead market and selling when the prices are moving up. 

-With respect to volatility, these contracts do not generate profit at a low variance. 

-NAES are also securing the shorts under long-term contracts, selling power to counter-parties assuming that higher electricity prices will materialize over seasons, years.

In a presentation, Noble valued these contracts at a book-value of more than $1.45 billion.

It is not a coincidence if the Singapore-listed trader, who is at the center of a profit accounting dispute, has hired Morgan Stanley for the disposal of Noble Americas Energy Solutions. 

Why aren’t they de-listed ? 

To facilitate the disposals is the 1ST REASON.

The current market situation in the U.S power is not a compelling business future case for Noble Americas Energy Solutions, (path dependent for the group own survival). 

This should cause a little concern among those who are trying to determine the intrinsic value of NAES currently on the sale block.

They have lost more than $3B in FCF over the last 24 months.

During Q2, the cash-flows from the operations didn’t even covered the cash interests expenses of their debt service.

Given that the trader is not generating cash and cannot expand its borrowing base, we can only assume that they are told that they have to sell Noble Americas Energy Solutions to repay the debtload. 

This is at 20-50% below the advertised book value to hit a bidder => and the house will consequently have to raise a significant shortfall in equity to repay the loans its lenders $3 billion, hence outlining the second and last REASON explaining why the Noble Group counter has remained listed on the Singapore Exchange at the present time.





How the “core assets” (contracts) are now performing ?

products

“One trader in the states keeps making huge money every year on pipeline deals, without him the story of oil liquids as a whole would be completely different.”*

 

  • Oil liquids had an EBIT of $646M in 2015, thanks specifically to three deals on Colonial, Magellan and Explorer pipelines.
  • In the past because they had just to sit  and were making money.
  • Now the majority of these deals are the red, some are losing -1c/gal/cycle, the trader has to keep losing money only to conserve its priority on the lines and fill its contracts until an arbitrage arise.
  • It is publicly known that the value of the lines have dipped into negative values for the shippers like Noble (implying no price arbitrage) –
    e.g

    the Positive MTM Fair Value MTM that the trader has on these commodity contracts has also to be marked down.

  • The trader has no refineries and unlike BP and Shell cannot afford to lose money each day in transportation to regain everything in cracking margins and volume % market share.
  • It is well-known that Noble is Asia’s largest commodity trader but its role in America has remained largely ignored in the public.
  • FYI Noble Oil liquids is shipping in excess of 1 million barrels per day, it is the largest gasoline blender in North America.

 

Knowing that:

  • Noble Oil Liquids operates in the [1 – 1.8] % sub-margin band and accounts for more than 70% of the operating income of the supply chains at Noble.
  • Several traders have cut their bilateral opened-credit lines with the “big swinging dick”.

 

How the “core assets” (contracts) are now performing ? 

Noble Group’s Cliffhanger

 

 

2010:  Harry Banga splits… most of Noble problems start here.1

2015:  Noble Group, one of the biggest traders of commodities from coal to iron ore is melting from its base.

Script writers have devised the solution of telling us a story  but leaving it at a cliffhanger, thus forcing the market to postpone their execution to hear the rest of the tale.

A villain was designed and a lawsuit with an injunction was filed with the Hong Kong High Court asking to ban his research, hoping to ensure the audience will return to see how the characters would resolve the dilemma.

Continue reading Noble Group’s Cliffhanger