Noble Group : Marginal dilution from placement

Placement to have minimal dilutive impact. Noble Group Ltd (Noble) has announced a placement of 84.7m new shares at S$1.52 per share. The new shares will enlarge the group's existing share base by a marginal 2.6%, and will raise net proceeds of US$86.2m, which will be used for general corporate purposes. Concurrent with the placement, major shareholder Noble Temple Trading Inc (in which Noble's CEO Mr Richard Elman has a deemed interest) will place out 36.3m vendor shares, representing 1.1% of Noble's issued capital. The placement shares have been priced at a 2.5% discount to the weighted average price from 11 to 12 May 09 prior to trading halt. Dilutive impact from the new share placement is insignificant - our FY09F EPS has been trimmed to 11.3 US cents from 11.6 US cents. NAV is expected to increase to 59 US cents from 58 US cents.

No pressing need for additional funds. Looking at its strong balancesheet, Noble has no urgent need for additional funds. The group's adjusted net cash position (cash and readily marketable inventories less debt) improved to US$376m in 1Q09 from US$358m in 4Q08. Available credit facilities remained ample at US$4.2b. According to management, funds raised from this placement will be used for general working capital purposes, and will come in handy should commodity prices rise. We reckon that additional funds will also strengthen Noble's position for future acquisitionopportunities, such as its ongoing bid for Gloucester Coal Ltd, which could cost the group US$281.4m. In addition, this placement, which was largely targeted at institutional investors, will serve to diversify the group's institutional shareholder base.

Reduce to HOLD on valuations. Noble has demonstrated its ability to manoeuvre harsh operating conditions by delivering a strong set of 1Q09 results with volume growth seen across all its segments. Nevertheless, its outlook remains highly dependent on the recovery of the real economy, which remains unconvincing at this juncture. In view of the recent rally, we are adopting a more cautious stance on the stock. We have tweaked our fair value estimate to S$1.62 (from S$1.66) to account for dilution. Given the limited upside to our fair value estimate, we reduce our rating to HOLD.

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