Despite continuing to rely on recovery to normality in the oil and gas industry, Northbridge has targeted additional growth areas, not least the fast-growing data centre and renewable energy sectors. A recovery in revenues, coupled with the sharp reduction in the cost base, should return the Group to profitability during H2 2019F.
The Group has focused on removing cost, while maintaining its geographical presence, so we expect the rising top-line to result in strong operational leverage in Northbridge’s bottom-line.
Rental sales, across both divisions, continues to be the primary means of growing the top-line, evident in the progress in gross margins. As such, the Group maintained the number of outlets throughout more difficult markets and, more recently, opened a rental operation in the US.
With acquisitions continuing to play an important role, we do not expect November 2018’s purchase of PPC to be the last, particularly in view of the strong balance sheet and improving cash flow.
Cash flow has remained positive in recent years, notwithstanding the move into losses. We anticipate cash generation to build as the Group moves to a profit in H2 of the current year, resulting in a further strengthening of the balance sheet, investment in the rental fleet and further M&A activity. The strong cash flow should allow the Group to re-commence dividend payments during the FY2020F year
We think that the shares are lowly rated in comparison to our DCF analysis and considering its net asset value / share of 128p. Our valuation calculation suggests a fair share price value of 173p, representing a significant premium to the existing share price.
