Northbridge Industrial Services
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 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.Download Now Missing Out Get our research first
Another encouraging update
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.Download Now Missing Out Get our research first
Listen to CEO discuss trading update
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
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.
Liquidity: 'plan B' already underway
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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