Northbridge Industrial Services (“Northbridge IS”) has issued a trading update covering the first five months of the year. Key points include an excellent y-oy uplift in Q1 revenues and resilient trading during April and May. Management acted early to reduce costs, while cash flow proved strong enabling investment within the business. The outlook for H2 appears positive, reflecting a catch-up on delayed orders at Crestchic and contracts at Tasman. The Group’s funding arrangements were extended by a further 12 months. Also, a new NED, Stephen Yapp, has been appointed to the Board. The shares remain at a significant discount to NAV and the valuation of its peers.
Companies: Northbridge Industrial Services
Northbridge Industrial Services (“Northbridge IS”) 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.
Northbridge Industrial Services (“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).
Northbridge Industrial Services (“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 trading update from Northbridge Industrial Services (“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.
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 its interim results 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.
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. We have increased our adj. PBT estimate for FY2019, anticipating that the recovery in the Group’s markets is likely to broaden further and the operational gearing push profitability higher. In-line with the modest uplift in our FY2019 adj. PBT estimate, our DCFbased fair value increases to 204p, over 50% above the current share price.
The 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 very 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. We find this confidence most encouraging in view of the short-term nature of the hire activity of both divisions.
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The 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 strong trading has warranted an increase in the level of investment in the hire fleet. Owing to the hire order book being short term in nature, coupled with moving into more difficult comparatives owing to last year’s FIFA World Cup, we have prudently left our FY2019 breakeven estimates unchanged but remain very encouraged by today’s trading statement.
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. We therefore 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.
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Electrical and oil services equipment specialist Northbridge has confirmed that recent trading has continued to improve and is in line with its forecasts. We maintain our estimates and note the continuation of the steady improvement in the tone of announcements. After recent share price weakness, we believe the valuation looks compelling at a FY 2019E EV/EBITDA of 5.6x, falling to 3.9x in FY 2020E. We maintain our 172p target price – 53% upside – and our Buy recommendation.
The pre-close trading update 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. 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.
The share price of Northbridge declined sharply during Q4 2018, reflecting the fall in the price of oil and a belief that any recovery in rig count is likely to be delayed. Although the Group’s dependence on the oil & gas industry has lessened in recent years, a recovery to normality in the industry is important to Northbridge. Management strategy has, meanwhile, targeted additional growth areas, not least the fast-growing data centre and renewable energy sectors. That said, even at the current oil price, we still expect rig count to continue to expand during FY2019F and beyond.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Further Profitable Growth to Come
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Full year results ahead - robust position against uncertain near-term backdrop
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