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In Case You Missed Muddy Waters' Short Thesis On Noble Group, Here It Is

In Case You Missed Muddy Waters' Short Thesis On Noble Group, Here It Is

Editor's note: A previous version of this story incorrectly stated Noble Corp, which trades under the NYSE with the ticker "NE," as the company under coverage.

Muddy Waters, LLC on Thursday issued a research note on Noble Group Limited ADR (OTC: NOBGY).

Director of Research Carson C. Block introduced the firm’s short thesis by stating that “Noble seems to exist solely to borrow and burn cash."

Block added, "According to Bloomberg, Noble has been free cash flow positive only four out of 20 years – in other words, it literally generates positive free cash flow once every five years!”

The firm claimed that it was actually “short Noble’s management” and the note expressed the idea that the company’s management could not be trusted.

“Management’s actions taken on the eve of Noble reporting its first quarterly loss since being public, give a clear view of how they operate. Through a highly questionable acquisition followed by a series of suspicious transactions, Noble reduced its first reported quarterly loss by approximately two-thirds,” according to the firm’s analysis.

An examination of various transactions, according to the firm, appear to be nothing more than accounting tricks in order to show an increase in net income.

As an example, Noble’s purchase of PT Alhasanie (PT ALH) in Q3 2011 allowed it to book “a gain from negative goodwill that reduced its quarterly loss by approximately two-thirds.” according to the analysts. The transaction seems to indicate that Noble acquired a company worth $46.7 million for only $300,000, which the firm had difficulty believing.

The report concluded that the PT ALH deal “shows us that one contract can significantly move the needle” and that management had failed to adequately respond to criticism over its accounting practices “because transparency could negatively impact Noble’s credit rating,” in the view of Muddy Waters’ analysts.


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