Northbridge Industrial Services
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

Cautious optimism

Published: 12th August 2020

The H1 pre-close trading update from Northbridge suggests that H1 adj. PBT is likely to be broadly unchanged y-o-y at the break-even level. This, however, masks a strong Q1 which mostly followed the positive trends seen in 2019 and a COVID-19 related downturn in Q2.

Delays to longer-term projects may affect Q3 trading at Tasman, with recovery more likely from Q4. Crestchic sales and rental in advanced economies continues to perform well, with 2020 hire revenues likely to be impacted by reduced testing in the Middle and Far East, related to natural resources and shipyards.

Overall revenues declined just 4.8% y-o-y during H1, which we consider an incredibly positive result given the wider global economic impact of COVID-19. Management has previously stated that revenues in April and May fell by 13% y-o-y, suggesting a near double-digit improvement during Q1. The mix of revenue, however, did change markedly with manufacturing likely to have improved on the 38.2% share of revenues delivered during H1 2019, reflecting record order books.

Net debt has declined modestly from the year-end to £6.3m (FY2019A: £6.4m). What is encouraging is that management has confirmed that it has formally extended its existing banking facilities and loan notes (£4.0m) by a further year to June 2022.

We continue to believe that the share price is both well supported and yet to reflect improved group trading. That view is supported by lowly ratings: a 27% discount to NAV and a trailing (2019) EV/EBITDA multiple of just 4x, which represents a 32.4% discount to its peers.

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Another encouraging update

Published: 25th June 2020

NBI has issued a trading update covering the first 5 months of the year. Key points include an excellent y-o-y uplift in Q1 revenues and resilient trading during April and May. Management acted early to reduce costs, while cash flow proved strong. The outlook for H2 appears positive, reflecting a catch-up on delayed orders at Crestchic and contracts at Tasman.

Net debt was broadly unchanged at £6.4m from the year-end, with the improved cash flows invested in a combination of capex and working capital. Trailing EBITDA increased to £7.4m in the year to April, which compares to £7m in the year to December and £5.7m a year earlier.

The strong cash flow has enabled the Group to extend its existing banking arrangement by a further year and the convertible loan agreement was extended to July 2022 on amended terms.

The Group is trading on a trailing EV/EBITDA multiple of 3.7x, which amounts to a significant discount (36.0%) to its peers. The shares currently trade at 35% discount to a book value that is backed by the rental fleet and properties, and which compares to a 41% premium to NAV for its peers. 

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Listen to CEO discuss trading update

Published: 4th May 2020

Eric Hook, CEO of Northbridge IS, covers current and recent trading, plus financial liquidity and cost control. The briefing lasts 8 mins.  

Experience delivering results

Published: 4th May 2020

Northbridge Industrial Services has issued an encouraging trading update that highlights: strength of demand for manufactured loadbanks (Crestchic); maintained factory production; strong liquidity; tight control of costs; continued deliveries/pick-ups within rental; a degree of uncertainly at Tasman regarding medium-term projects.

Although trading had begun to dip by the end of March, overall the momentum built during 2019 continued. Significantly, the volume uplift within Tasman had resulted in that division moving into profitabiliy ahead of our expectations.

The record manufacturing order book at Crestchic, which further improved in recent weeks, is impressive and requiring the factory to work at, or close to, full capacity for the remainder of the year. The factory has remained operational throughout the lockdown period, testimony to the newly introduced working practices and the critical nature of some of the end markets for the loadbanks (including healthcare).

We remain encouraged by the management actions to date, coupled with healthy financial liquidity and the ongoing strong performance of manufacturing. The share price stands at a substantial discount to the NAV and a price-to-book ratio of just 0.6x.

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Liquidity: 'plan B' already underway

Published: 7th April 2020

Northbridge has produced preliminary results that were ahead of expectations across several metrics. The Group achieved a significant milestone in returning to profitability for the first time in five years.

Margins continue their upward trajectory, aided by the high levels of operational gearing. Geographical expansion continued, following the opening of new depots in Singapore (Tasman) and Pennsylvania (Crestchic).

Reported cash flow continued to be positive, driven by a marked increase in EBITDA to £8m and, following the purchase of a hire fleet from a failed competitor, capex declined. Net debt fell to £6.4m, representing healthy net debt/EBITDA and gearing levels of 0.8x and 18%, respectively.

While the strong H2 2019 trading continued into Q1 2020, restrictions on trade associated with COVID-19 related lockdowns began to influence activity by the end of the period. Additionally, the sharp decline in the oil price has created uncertainty surrounding its customers’ ability to invest in new projects for 2021.

But Management has taken immediate action on costs and use of cash to maintain its strong liquidity position. And the balance sheet, the cost base and geographical diversification of the order book remain in comfortably better shape than in late 2014 when the Group last dealt with a slowdown.

At 124p / share , the NAV currently sits on an 85% premium to the stock price and gives a price-to-book ratio of 0.5x. 


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Well placed to deal with uncertainty

Published: 26th March 2020
Northbridge has issued a trading update giving a degree of clarity ahead of 2019 results. Q1 trading has been strong in some areas (Crestchic manufacturing) and weaker in others, reflecting the limits on the movement of personnel and equipment across borders as nations struggle to contain the pandemic. 
However, we draw comfort from the experience of Northbridge in handling previous crises, a high NAV per share and expected rising demand for gas in Australia during Q2 and Q3. Together, they suggest the share price is already discounting an elongated recession. 
The recent lockdowns across many nations have meant difficulties in moving personnel and equipment across borders, coupled with the temporary closure of numerous industries. Such trends are beginning to impact both divisions. As a result, Management has suggested that Q2 and Q3 are likely to prove quieter than expected. As such, and with no imminent control over the spread of COVID-19, we feel that it is sensible to suspend our financial estimates until greater clarity is forthcoming. 
As at 30 June 2019, the Group’s NAV stood at £36.3m (2018: £36.5m), or 128.5p per share (2018: 129.3p). We would expect the current NAV to be little changed, so standing at a hefty 86% premium to the current share price. The NAV is backed by freehold property in the Group worth £4.5m and by the rental fleet, a further £18.5m.
We still believe that the Group’s long-term fundamentals remain positive, reflecting the growing requirement for the commissioning and testing of datacentres, hospitals, power grids within Crestchic, and a leading market position in Australasia at Tasman. Although our estimates are suspended temporarily, we see Northbridge’s underlying value as well reflected by its NAV, i.e. 129p / share.
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A time to trust fundamentals

Published: 28th October 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. 
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Progress is ahead of plan

Published: 26th September 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). 

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Good progress YTD

Published: 4th June 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.  

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Walking the talk

Published: 6th February 2020
The recent trading update from Northbridge confirmed that the ‘talk’ of recovery has moved on to reality, with confirmation that the Group has returned to profitability. Significantly, the outlook for 2020 remains upbeat. 

Moving into profit and the related improvement in cash flow allows the Group to take advantage of a broader range of options for growth. Management relayed this to investors recently, underpinning our expectations of continued strong top-line growth and a move to meaningful profitability over 2020 and 2021, along with a realistic possibility of a return to the dividend list.   

Trading during H2 saw a considerable improvement on the prior year and continuing the trends experienced during H1. With most revenues derived from rental activities, the business demonstrates significant operational gearing. 

While there is a degree of resilience within the UK and European markets for Crestchic, its overseas markets are generally more cyclical or, in the case of the US where the Group is a relatively new entrant, at the early stages of growth for the division. 

Trading within the Group’s oil & gas drilling equipment markets performed strongly, albeit growing from a low base, and significantly outperformed activity in the wider market. Figures from Baker Hughes suggest that rig count across the Asia Pacific region, where the division is most active, declined 2.2% y-o-y. By contrast, Tasman benefited from recovering natural gas and LNG markets within Australia. 

With no change to estimates, we have retained our DCF-based fair value at 204p / share. While this suggests a relatively high forward PER of 22.3x, the return to positive EPS in 2020 and the likely rapid growth, thereafter, indicates that the forward PER for FY2021 will be more reasonable. That in turn provides scope for further momentum in the share price, particularly should EPS momentum improve faster than currently anticipated. 

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Recovery gaining momentum

Published: 11th April 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).  

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Recovery on track

Published: 5th February 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.  

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Operationally leveraged

Published: 29th January 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.

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Resilient recovery

Published: 2nd August 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.
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