Today's 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 update accompanying the AGM highlights the deepening of recovery in its markets, and especially within the Australian arm of Tasman Oil & Gas. The improving backdrop has resulted in further investment in the hire fleet, supplementing the acquisition in SE Asia at the end of 2018. The improving revenues reflect uplifts in volume, with hire rates continuing to bump along the bottom.
Management stated in early February that Crestchic began 2019 with its largest ever New Year order book for the sale of manufactured equipment, which followed on from the 15.8% sequential growth in revenues during H2 2018. Good growth continues to be experienced in power reliability, data centre and the renewable sectors, with recovery beginning to emerge within the marine back-up power market, a historically strong market for Crestchic.
With hire dominant and accounting for just less than two-thirds of revenues, the business remains highly operationally leveraged. This has fed into the 12-month trailing EBITDA, which in the 12-months to April 2019 increased 78% y-o-y to £5.7m (versus £3.2m in 2018) and by 24% since the beginning of the year (up from £4.6m). Even after discounting a generous depreciation policy, it highlights the strong progress the Group is making towards achieving our FY2019 PBT estimate of breakeven, notwithstanding moving into a period of stronger comparatives due to last year’s FIFA World Cup in June/July.
The improving depth of recovery in the Group’s markets, coupled with the impact the high level of operational gearing is having on the move to profitability, strongly suggests that the share price has further to go in the short and medium term, notwithstanding the strong progress YTD. With estimates prudently left unchanged for now, our previous DCF-based fair value of 203p per share remains intact.
