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.
