Northbridge Industrial Services is a holding company focused on two divisions. Crestchic, the larger division, is a specialist provider of electrical equipment used primarily to commission, test and service within power reliability and power security markets globally. Tasman Oil Tools is a rental specialist of down-hole tools to the oil & gas, geothermal energy and coal bed methane markets.
The pre-close trading update today was positive with further evidence of recovery in several of the Group’s markets. Whilst no guidance was given in terms of gross margins, we see further improvement y-o-y reflecting a growing proportion of rental income versus sales. The purchase of PPC has gone smoothly, with customers retained in SE Asia and equipment utilised by the Malaysian JV.
2018 was typified by an increase in the proportion of rental versus sales, reflecting an easing of the previously tight conditions in the drilling tool market (Tasman) and strong progress in the US (Crestchic). The rising number of opportunities in data centres and renewable energy (Crestchic) also contributed to the improving proportion of rental income in the developed economies. Rental revenues at Tasman were significantly ahead y-o-y, albeit from a modest base.
The acquisition of PPC during November was significant, due to the asset base increase of c.US$10m, at a cost of US$4.0m (£3.1m); expansion of the customer base beyond Malaysia to include Singapore, Thailand and Vietnam; and the modest recovery in the oil & gas markets signalling an end to the cost cutting programmes in place from 2015.
2019 looks to have started well, with record order books at Crestchic’s sales division and long-term growth derived from Crestchic USA, renewable power generation and in a recovery in oil & gas, resources and shipping markets. Despite modest capex and the asset purchase of PPC, we expect the level of net debt to be comfortable, reflecting improving cash generation. We anticipate that the Group will return to profitability during H2.
With no change to estimates and positive signs concerning trading, we reiterate our valuation of 173p / share, which equates to a premium of 54% to the closing share price.
