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).
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. Management has taken immediate action on costs and use of cash to maintain its strong liquidity position. We take comfort that the shares have support from the relative strength of the balance sheet, management’s recent experiences and the high asset-backed NAV.
Northbridge has issued preliminary results ahead of expectations and achieved a significant milestone in a return to profitability. Adjusted PBT of £0.3m beat our expectation of £0.2m, the latter an upgrade from break-even earlier in the year. Margins at both the gross and operating levels continued their recovery, rising to 47% and 6%, respectively, aided by the strong levels of operational gearing. It is worth noting that these levels remain someway below previous peaks, suggesting scope for further growth over the medium term.
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 Q1 commenced strongly, aided by a robust Australian gas market at Tasman and a record manufacturing order book at Crestchic, by the end of the period restrictions linked to COVID-19 had begun to impact the Group’s ability to service customers. A further concern was the collapse of the oil price in recent weeks. COVID-19 restrictions aside, we believe that existing contracts are likely to be completed but have concerns over the outlook for 2021. Should the oil price fail to improve, then at current levels investment into new or ad hoc projects could be severely impacted.
That said, 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. We are not yet publishing financial estimates, preferring to wait until there is greater clarity on the length and depth of this economic downturn.