Bull stock: Noble Group 0 comments

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In this blog site I shall also cover stocks that have had phenomenal bull runs or those that had experienced price collapse. Note that bull stocks are not necessarily good buys since they have already been recognised as such and might not be worth buying any more.

When we talk about bull stocks on the SGX over the last few years, one must surely stand out: Noble Group. According to a study in 2004, the group outperformed every other major stock on the SGX over a 3-year and 5-year period in terms of total shareholder returns. But it was not always such a favoured company.

During the great technology boom of 1999-2000, the stock stagnated at slightly above 10 cents (adjusted for all splits to compare with today's price). Indeed, it was so illiquid that on some days the stock was not traded at all. This could probably be due to its extremely low net profit margins (~2%), which caused it to suffer a loss in 1998 when revenues slumped (but of course, that was when Asian economies were suffering from the after-effects of the Asian financial crisis).

The stock price gained strength slightly over the recession years of 2001-mid 2003 as it demonstrated strong revenue growth (>50% growth every year). However, investor concerns lingered about its declining margins which caused net profit to remain stagnant despite the excellent topline growth. Some discerning ones might have spotted excellent potential in its growing business arms, as it expanded into a major supply chain manager and logistics provider in the Asia-Pacific dealing with resources that were soon to explode in demand, such as metals, minerals, ores and grains.

This was to take place in 2003, particularly in the later half when the world economy staged a strong recovery. The net profit margin improved substantially from FY2002 and this, combined with the revenue growth which continued its >50% annual growth, resulted in a doubling of net profits. Fund managers bought into the stock and with it came broker coverage and further institutional attention; it was no longer an illiquid stock.

The momentum was to continue and even accelerate. The last two years have seen the long-predicted rise of China, and with it an incessant demand for resources to build its red-hot economy. Noble was in the centre of all this, as a major player in supplying these from resource rich countries (eg. Australia and Indonesia) and to resource-hungry behemoths like China and India, netting spreads at each end. Net profit margins more than doubled to >3% in 2004, with revenues doubling from 2003. The figures are set to remain steady in 2005. Over this period, the stock has more than tripled. It is now at about $1.40; an investor holding it from the year 2000 till now would have had more than a ten-bagger, to use Peter Lynch terminology.

Today Noble is a member of the MSCI Index and the STI Index, and is acclaimed as a new blue chip. Its CEO Richard Elman is sought after for his witticisms and unconventional style at AGMs. It is seen as one of the most transparent companies. Its transformation is complete. One wonders how much longer its momentum can sustain. Given its track record, who would have the guts to bet against it?

References:
(1) Shares Investment: Facts & Figures (several issues from 2000 till 2005)