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September 2, 2016
Noble Group Ltd. is a supply chain manager headquartered in Hong Kong, involved in the commodity trading of oil, coal, metals and palm oil. Five years ago, Noble group was among the 100 biggest companies in the world by revenue, generating it by purchasing physical commodities, transforming and then trading them. Since then, its shares value have decreased 90%. For the fiscal year 2015 Noble Group posted its first annual loss in twenty years, losing $1.7 billion due to significant reported impairments. These corresponded to allegations of misleading aggressive accounting overvaluing Noble Group’s commodity contracts.
Chain Reaction Research found that forecast of 2016 revenue is $46 billion, 30% below 2015, due to poor semi-annual performance and asset sell down strategy which may shave 4.5% off expected 2016 operating earnings, 18% annualized. Impairments of palm oil assets and coal receivables may reduce balance sheet equity value by $400 million, or 12%. 33% of Noble’s palm oil landbank is undevelopable as it is primary forest and possibly peat. Coal assets are said to be overvalued by 30%. Syndicate banks have been involved in the recent rights issue and are also involved in the divestment of North America Energy Solutions (NAES), suggesting a conflict of interest coupled with possible mispricing of debt and future increase in borrowing costs. Net profit outlook for 2016 and beyond is below consensus due to divestments and expectations for higher interest rate. Risks for shareholders remain.
BlackRock Calls Out Deforestation as Climate Risk
BlackRock, the world’s largest asset manager with close to $5 trillion under management, published “Adapting Portfolios to Climate Change.” In this analysis, BlackRock states that companies, including consumer goods companies, who fail to address deforestation risks in their supply chains face possible financial risks from climate change.
According to the report, climate factors are underappreciated and underpriced because they are “less visible” to investors. Yet, this may be rapidly changing.
Haze Health Impacts and Numbers Dispute
Harvard and Columbia universities published estimates this week suggesting that SE Asian 2015 forest fires and haze may have resulted in 100,000 fatalities in Indonesia, Malaysia, and Singapore. The study only focused on “fine particulate matter,” referred to as PM2.5.
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Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.
We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.