Resilient recovery
Trading updates continue to improve from Northbridge. The pre-close report in February highlighted Crestchic’s largest ever New Year order book in manufacturing, while June’s AGM statement suggested that the recovery during the first five months of the year had been led by hire.In today’s statement, management says that trading ‘is very much improved’ y-o-y, with the recovery in rig count within energy markets resulting in higher activity levels, particularly in hire and across both divisions. As a result, management is confident of achieving FY19 expectations.
Crestchic, the supplier of load banks and transformers, has proved resilient. Strong performances from power reliability and data centres (power load and heat load testing) has widened with both energy and marine industry delivering marked improvements y-o-y. Crestchic continues to gain traction in the US and follows from the shipping of Asian inventory last year.
The acquisition of a large hire fleet from a Malaysian company in administration in late 2018 has proven to be a shrewd move. Tasman is emerging from the recession in its markets with a much wider geographical and customer footprint and as a result, has gained market share from competitors. The improvement in rig count in the Australian gas and LNG export markets is currently proving helpful, which we expect to improve further in view of the early stage of recovery.
We have highlighted previously that, with hire accounting for approximately two-thirds of revenues, the business remains highly operationally leveraged. The 78% growth y-o-y in EBITDA witnessed after five months (AGM), is likely to have improved further and not only underpins year-end financial estimates but also, cash flow.
On unchanged estimates, our DCF-based fair value of 203p per share remains intact. In view of the improving momentum within the business, we see little justification for the share price decline from late April onwards.
Northbridge Industrial Services is engaged in the sales and hire of industrial equipment on a global basis for use in applications in the oil and gas, shipping, construction, and power and utility sectors. Co. has two main reportable segments: Crestchic loadbanks and transformers, which is involved in the manufacture, hire and sale of loadbanks and transformers; and Tasman oil tools and loadcells, which is involved in the hire and sale of oil tools and loadcells.
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