Northbridge Industrial Services

www.northbridgegroup.co.uk TICKER: NBI     EXCHANGE: L

Northbridge Industrial Services is a holding company focused on two divisions. Crestchic, the larger division, is a specialist provider of electrical equipment used primarily to commission, test and service within power reliability and power security markets globally. Tasman Oil Tools is a rental specialist of down-hole tools to the oil & gas, geothermal energy and coal bed methane markets

LATEST REPORTS

 
A time to trust fundamentals
Published: Oct 28 2019

Despite a strong H1 trading performance in which management suggested that it remains confident on trading for the year, the share price has declined 11.7% in the period since the interim results. If anything, since then the outlook for its markets have remained positive with the oil price firming and rig count in the key regions for Tasman continuing to improve. 
At the recent interims (26 September) Management reported “Northbridge is starting to see the benefits from the recovery in activity in the oil and gas markets across both our operating divisions…with the operational gearing now beginning to have a significant beneficial impact on our cash generation. We are confident of trading volumes for the remainder of 2019”. 
In the last month, the oil price has increased 4.2% (averaging the change in West Texas Intermediate and Brent Crude). Although the worldwide rig count has continued to decline (-5.7% y-o-y to September 2019), significantly in the areas in which Tasman operates, the Middle East and Asia Pacific, the count improved 5.2% and 2.3% respectively. 
With 62% of revenues derived from rental activities, and a high gross margin, Northbridge continues to benefit from high levels of operational gearing. This may be witnessed in the strong recovery to profits, with adj. PBT of £0.2m estimated for FY2019 and £2.5m in FY2020, on revenues rising 6.3% y-o-y to £34.9m.
Our DCF analysis gives a fair value of 204p per share, representing a potential uplift of 67% from current levels. It is also encouraging to see that large, long-term holders of Northbridge shares, including Management, have recently increased their positions. 
 
Progress is ahead of plan
Published: Sep 26 2019

We are encouraged by the interim results for Northbridge Industrial Services (‘Northbridge’). The move to a positive, albeit modest, adj. PBT for the first time since H2 2014 signifies that a major milestone has been reached. 
The step to profits is six months ahead of our expectation. Our adj. PBT estimate for FY2019 is raised, anticipating that the recovery in the Group’s markets is likely to broaden further and the operational gearing push profitability higher.
The gross margin increased 500 basis points to 44.7%, driven by the 23.6% (£2m) y-o-y uplift in the level of higher-margin rental sales. Despite costs (Cost of Sales plus OpEx) rising to their highest level since H2 2015, the Group still managed to deliver its second consecutive EBIT for the first time since H2 2014. 
Crestchic performed well both in rental sales (up 21%) and in manufactured sales (34% higher), reflecting a combination of a widening of the recovery in the Group’s markets. The division began the year with its highest ever manufacturing New Year order book, reflecting higher demand from the USA and Europe. Underpinning the uplift in rental was the UK and European market, aided by recovery in the Middle East. 
Tasman delivered revenues 29% higher y-o-y and more than doubled from the levels of two years ago during H1. The main driver was the improving Australian gas and LNG markets, although two new oil fields began to contribute during H1. While volumes have begun to rise in energy markets, reflecting the effect of higher oil prices on exploration and production, prices appear to be bumping along the bottom (though they are stable).
The Group continues to benefit from high levels of operational gearing, reflecting the fact that most Group revenues come from rental activities (62%). We have modestly increased our adj. PBT estimate for FY2019 from a break-even position to £0.2m, rising to an unchanged £2.5m in FY2020. Following a stronger than anticipated H1 in 2019, we have raised revenue estimates by 10.2% in FY2019 and 5.6% in FY2020, suggesting the FY2020 uplift will be predominantly driven by Tasman.
Northbridge achieved the key milestone of returning to profitability during H1 and the next goal may be a resumption of dividend payments. Ahead of this, profitability needs to improve further, coupled with rising confidence in the outlook for the business. But the ongoing pace of the recovery in the Group’s markets greatly encourages us. 
The modest increase in FY2019 estimates results in an uplift in our DCF-based fair value per share to 204p (from 203p). 
 
Resilient recovery
Published: Aug 02 2019

Trading updates continue to improve from Northbridge. The pre-close report in February highlighted Crestchic’s largest ever New Year order book in manufacturing, while June’s AGM statement suggested that the recovery during the first five months of the year had been led by hire. 
In today’s statement, management says that trading ‘is much improved’ y-o-y, with the recovery in rig count within energy markets resulting in higher activity levels, particularly in hire and across both divisions. As a result, management is confident of achieving FY19 expectations. 
Crestchic, the supplier of load banks and transformers, has proved resilient. Strong performances from power reliability and data centres (power load and heat load testing) has widened with both energy and marine industry delivering marked improvements y-o-y. Crestchic continues to gain traction in the US and follows from the shipping of Asian inventory last year. 
The acquisition of a large hire fleet from a Malaysian company in administration in late 2018 has proven to be a shrewd move. Tasman is emerging from the recession in its markets with a much wider geographical and customer footprint and as a result, has gained market share from competitors. The improvement in rig count in the Australian gas and LNG export markets is currently proving helpful, which we expect to improve further in view of the early stage of recovery. 
We have highlighted previously that, with hire accounting for approximately two-thirds of revenues, the business remains highly operationally leveraged. The 78% growth y-o-y in EBITDA witnessed after five months (AGM), is likely to have improved further and not only underpins year-end financial estimates but also, cash flow. 
On unchanged estimates, our DCF-based fair value of 203p per share remains intact. In view of the improving momentum within the business, we see little justification for the share price decline from late April onwards.
 
Good progress YTD
Published: Jun 04 2019

Today's AGM update from Northbridge comprises a trading statement for the first five months of the year. Further recovery has been demonstrated across both divisions, led by equipment hire as opposed to sales. As such, it should come as no surprise to see the high level of operational gearing feed through into the 12-month rolling EBITDA, which has shown a marked improvement in both YTD and y-o-y comparisons.
The update accompanying the AGM highlights the deepening of recovery in its markets, and especially within the Australian arm of Tasman Oil & Gas. The improving backdrop has resulted in further investment in the hire fleet, supplementing the acquisition in SE Asia at the end of 2018. The improving revenues reflect uplifts in volume, with hire rates continuing to bump along the bottom. 
Management stated in early February that Crestchic began 2019 with its largest ever New Year order book for the sale of manufactured equipment, which followed on from the 15.8% sequential growth in revenues during H2 2018. Good growth continues to be experienced in power reliability, data centre and the renewable sectors, with recovery beginning to emerge within the marine back-up power market, a historically strong market for Crestchic.
With hire dominant and accounting for just less than two-thirds of revenues, the business remains highly operationally leveraged. This has fed into the 12-month trailing EBITDA, which in the 12-months to April 2019 increased 78% y-o-y to £5.7m (versus £3.2m in 2018) and by 24% since the beginning of the year (up from £4.6m). Even after discounting a generous depreciation policy, it highlights the strong progress the Group is making towards achieving our FY2019 PBT estimate of breakeven, notwithstanding moving into a period of stronger comparatives due to last year’s FIFA World Cup in June/July.
The improving depth of recovery in the Group’s markets, coupled with the impact the high level of operational gearing is having on the move to profitability, strongly suggests that the share price has further to go in the short and medium term, notwithstanding the strong progress YTD. With estimates prudently left unchanged for now, our previous DCF-based fair value of 203p per share remains intact.  
 
Recovery gaining momentum
Published: Apr 11 2019

The preliminary results from Northbridge IS were in-line with our expectations. Significantly, the uplift in the top-line has combined with the strong inherent operational gearing to move the Group to a near break-even position during H2 2018. This reinforces our confidence that the Group is on track to break-even in FY2019. 
Revenues improved 4.9% y-o-y to £26.9m, modestly ahead of expectations. However, the split of revenues was key, with rental accounting for 64.8% of the total, predominantly reflecting a 22.5% y-o-y improvement at Tasman. This resulted in gross margins climbing to 43.6%, the highest level since H1 2015A. The strong operational gearing inherent within the Group’s operations was a major factor in significantly reducing the adj. PBT loss to £2.0m (FY2017A: loss of £4.4m). During H2, for every £1 of revenue added, we estimate that approximately 67p fell through to EBIT. 
Cash generation continued to be strong, with operating cash flow rising to £4.3m (FY2017: £2.6m). This was supplemented by the placing of 2m shares at 125p, raising a net £2.4m. The acquisition of the lightly used hire fleet of a distressed competitor in SE Asia (PPC) for £3.1m in November 2018, resulted in a greater ability to service existing customers not only in Malaysia (JV of Olio Tasman), but also customers (some from PPC) in Singapore, Thailand and Vietnam. 
Conditions in the Group’s markets are improving, with opportunities opening to both divisions. That said, we believe the greatest upside lies with Tasman Oil & Gas in the short-term, reflecting the improving confidence at E&P companies, afforded by a stable oil price. The LNG, natural gas and geothermal markets are currently showing signs of recovery. Over the medium term, the recovery in the oil & gas energy sector will feed through to the marine sector of the power reliability market. 
We feel the Group’s current rating (a modest premium to its net asset value) ignores the next stage of recovery, with new PBT estimates of £2.5m in FY2020 and a resumption of dividends likely from FY2021. 
Updating our DCF model to incorporate the new FY2020 estimates indicates a fair value of 203p/share (up from 173p previously).  
 
Recovery on track
Published: Feb 05 2019

Northbridge Industrial Services is a holding company focused on two divisions. Crestchic, the larger division, is a specialist provider of electrical equipment used primarily to commission, test and service within power reliability and power security markets globally. Tasman Oil Tools is a rental specialist of down-hole tools to the oil & gas, geothermal energy and coal bed methane markets.
The pre-close trading update today was positive with further evidence of recovery in several of the Group’s markets. Whilst no guidance was given in terms of gross margins, we see further improvement y-o-y reflecting a growing proportion of rental income versus sales. The purchase of PPC has gone smoothly, with customers retained in SE Asia and equipment utilised by the Malaysian JV. 
2018 was typified by an increase in the proportion of rental versus sales, reflecting an easing of the previously tight conditions in the drilling tool market (Tasman) and strong progress in the US (Crestchic). The rising number of opportunities in data centres and renewable energy (Crestchic) also contributed to the improving proportion of rental income in the developed economies. Rental revenues at Tasman were significantly ahead y-o-y, albeit from a modest base.
The acquisition of PPC during November was significant, due to the asset base increase of c.US$10m, at a cost of US$4.0m (£3.1m); expansion of the customer base beyond Malaysia to include Singapore, Thailand and Vietnam; and the modest recovery in the oil & gas markets signalling an end to the cost cutting programmes in place from 2015.
2019 looks to have started well, with record order books at Crestchic’s sales division and long-term growth derived from Crestchic USA, renewable power generation and in a recovery in oil & gas, resources and shipping markets. Despite modest capex and the asset purchase of PPC, we expect the level of net debt to be comfortable, reflecting improving cash generation. We anticipate that the Group will return to profitability during H2.  
With no change to estimates and positive signs concerning trading, we reiterate our valuation of 173p / share, which equates to a premium of 54% to the closing share price.  
 
Operationally leveraged
Published: Jan 29 2019

Despite continuing to rely on recovery to normality in the oil and gas industry, Northbridge has targeted additional growth areas, not least the fast-growing data centre and renewable energy sectors. A recovery in revenues, coupled with the sharp reduction in the cost base, should return the Group to profitability during H2 2019F. 
The Group has focused on removing cost, while maintaining its geographical presence, so we expect the rising top-line to result in strong operational leverage in Northbridge’s bottom-line. 
Rental sales, across both divisions, continues to be the primary means of growing the top-line, evident in the progress in gross margins. As such, the Group maintained the number of outlets throughout more difficult markets and, more recently, opened a rental operation in the US.
With acquisitions continuing to play an important role, we do not expect November 2018’s purchase of PPC to be the last, particularly in view of the strong balance sheet and improving cash flow.
Cash flow has remained positive in recent years, notwithstanding the move into losses. We anticipate cash generation to build as the Group moves to a profit in H2 of the current year, resulting in a further strengthening of the balance sheet, investment in the rental fleet and further M&A activity. The strong cash flow should allow the Group to re-commence dividend payments during the FY2020F year
We think that the shares are lowly rated in comparison to our DCF analysis and considering its net asset value / share of 128p.  Our valuation calculation suggests a fair share price value of 173p, representing a significant premium to the existing share price.

ARCHIVE

2011
Bolt-ons reinforce attractions
Published: Dec 19 2011

Northbridge sells and rents products such as power generators, loadbanks, compressors, and oil and gas field equipment. They have just announced the acquisitions of Loadcell Services and DSG Rental, respectively based in Singapore and Belgium
Loadcell is in Singapore sells and rents drilling equipment and instrumentation to oil industry clients in Vietnam and Indonesia. The total consideration equates to 2 x revenue if profit targets are met
DSG Rental, based near Antwerp, has been purchased for a total consideration of up to 2.9m and specialises in containerised transformers and switchgear, and services clients in Europe, Africa and the Middle East. The company is highly profitable, with EBITDA/Sales of 61%. 
DSG fills out the loadbank/transformer rental offering and adds additional customers and products. Loadcell complements the much larger purchase of Australian-based Tasman Oil Tools earlier this year. The fit with other aspects of the group's operations is also good and there are considerable cross selling benefits and customer complementarity in both new acquisitions
Northbridge shares have fallen along with the market since the interim results to a price of 212p, which leaves the shares on a 2012 earnings multiple of 8.3x, too low a rating for a business predominantly operating outside of problematic European economies
Better than billed
Published: Oct 11 2011

Northbridge was formed to pursue a 'buy and build' strategy in specialist industrial equipment sales, rental and services.Their interims produced an adverse price reaction, despite a solid dividend increase.Yet the encouraging outlook for 2012 contradicts a downbeat assessment.
Strong cash generation and low gearing provides the option to make further acquisitive moves. The group's past track record in this area gives confidence that any acquisitions can be successfully absorbed. Attractively-priced opportunities are available and should be able to be financed without recourse to additional equity
We expect pre-tax profits for the full year to reach close to £4.7m and produce unchanged EPS of 24.8p. DCF analysis supports a medium term target price of 300p, compared to the current price of 234p. A tentative longer term price projection suggests values in excess of 400p on the basis of current relatively low discount rates. 
International expansion aids profitability
Published: Apr 04 2011

Northbridge was formed to pursue a 'buy and build' strategy in specialist industrial equipment sales, rental and services: it listed on AiM in 2006, and management has extensive experience in this area

Full year results showed the benefits of its careful acquisition-led strategy flowing through, with improved margins resulting from the acquisition in mid 2010 of Tasman Oil Tools and its high proportion of predictable rental income. Margin growth is set to continue, underpinning profits.

The placing accompanying the Tasman purchase also brought in a number of prominent institutional investors, including Artemis and Blackrock each holding just short of 10% of the shares. The company's market capitalisation is now well over £30m, a fact that should bring it further to the notice of small and mid-cap growth company fund managers. The shares have risen from around 133p at the time of the Tasman acquisition to 221p now.

DCF valuation, as well as 7.9x PER and 2.4% yield for 2011, underpin a 290p per share medium term price target and a longer term goal of 475p.
2010
Scaling up
Published: Sep 30 2010

Interim results for Northbridge were up to market expectations and the company is on track to make pre-tax profits in the region of £3.6m for calendar 2010. Profits have benefited particularly from the continuing shift in sales mix towards the higher margin rental side of the business, in which the company has been investing heavily for some time. The acquisition of Tasman Oil Tools in Australia has been completed successfully and will further enhance underlying margins.

The shares currently stand on an earnings multiple significantly under those accorded similar companies, and we believe there is scope for the rating to improve significantly. This is confirmed by a conservatively constructed discounted cash flow valuation. On balance we believe a target price of 300p (current price 186p) is more than justified on a one-two year view. 

Ideal acquisition
Published: Jul 08 2010

An established operator in industrial services with very experienced management

Strong focus on international operations and high margin rental

Acquiring Tasman gives presence in Australia and strengthens position in Oil &Gas

Fair value share target remains 200p, versus current 133p level
Positioned on growth markets
Published: Mar 30 2010

'Buy and build' operator in industrial services

Exposed to attractive markets in power generation, renewables and oil & gas

Forecast recovery in profits for 2010

PER, yield and DCF considerations all support considerably higher price
2009
Attractive low rating
Published: Oct 15 2009

 'Buy and build' operator in industrial services sector

 Growth markets in power generation, renewables and oil and gas

 Acquisition programme likely to resume in due course

 Target price of 200p short term; 295p in the long term.

Performing strongly
Published: Apr 06 2009

Excellent full year results

Acquisition strategy well executed

Forward PER of 6x suggests significant undervaluation

Robust trading update
Published: Feb 04 2009

Northbridge recently issued a pre-close season trading statement covering the year to 31st December. Management states that since the update announced at the time of the interim results, trading continued to be strong in all its markets for the whole of the second half of the year. It further noted that trading results for 2008 were likely to be ahead of market expectations.
2008
Impressive progress for buy and build strategy
Published: Mar 18 2008

Experienced managed team

Growth markets in power generation, renewables and oil and gas

Successful acquisition programme to date

Positive results released with record order book

Fair value per share seen at  200p short term, 260p longer term: vs current 147p

A group engaged in hiring and selling industrial equipment.