Northbridge Industrial Serviceswww.northbridgegroup.co.uk TICKER: NBI EXCHANGE: L
Northbridge was set up in 2005 as a 'buy and build' operation in the industrial services sector. Since that time it has grown substantially to become a global business with sizeable revenue streams in both sales and rental of heavy duty industrial equipment including loadbanks, used to test the power output of large generators and motors, transformers, and generators, as well as a significant business in the oil services sectors. This was substantially enlarged via the acquisition in 2010 of Tasman Oil Tools in Australia but the group also has a sizeable customer base in the Middle East and Caspian Basin. Acquisitions have produced significant opportunities for cross selling and customer sharing. Rental revenue, which enjoyed very high margins, is becoming the predominant source of turnover, something of a deliberate strategy by the group's management in recent years.
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 Â£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.
Interim results for Northbridge were up to market expectations and the company is on track to make pre-tax profits in the region of Â£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.
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
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.