Glencore, Noble Group – What Are They Really Worth?

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Glencore, Noble Group – What Are They Really Worth? by Jun Hao, The Asia Report

I’ve been following the news about Glencore the last two weeks, and its been a wild ride.

Is there a mis-pricing here?

I remember hearing the pitch for a couple of commodity stocks over the years. One of them was for the embattled Noble Group by Eastspring (subsidiary of Prudential). Orbis, a fund management company I respect greatly owns a big chunk too.

While management once indicated it was a temporary setback, I am not so sure any more with even the titans of the industries coming to their knees.

One of the things that has always puzzled me is the business models of these business.

Plenty of revenue. Check. Net profits. Check.

Free cash flow? Well, that’s a different matter altogether.


Glencore’s 5 Year Financial Summary, Source: Morningstar

Every time I see a stock like that, I instinctively think about Enron (not indicating that Enron or Noble Group are frauds like Enron, just highlighting some similarities in their cash flows here..)

Coincidentally, I wrote about it six years ago here.


Enron 1996 – 2000, Source: Enron Annual Reports

Its a simple enough metric to calculate, but surprisingly robust. Cash rarely lies.

So how about our own Singapore listed Noble Group?

Noble Group

Noble Group Financial Summary, Source: FT

Maybe its me, but I don’t understand businesses that seem to burn ever more cash as they increase their revenue.

Ten years is a pretty long time for me to see persistently negative free cash outflows.

Still, stock prices are down so much that I had a look at them again to see if I was missing something. However, I can’t wrap my ahead around what these businesses actually do.

Simply put, I can’t figure out how it is that they actually make money.

I think this tweet pretty much sums it up:

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