Electrical and oil services equipment group Northbridge Industrial Services plc (LON: NBI) has delivered its first positive PBT since 2014, albeit a small one, buoyed by strong sales in electrical and operational gearing in oil. We have raised our FY 2019F PBT estimate from zero to £0.3m and conservatively maintain our £2.5m forecast for FY 2020F. We believe operational leverage should continue to drive recovery in profits and cashflow and present the relatively strong group with market opportunities. Although the company has not yet committed to reinstating the dividend, we believe it is likely to rise up the agenda.
Into the black, buoyed by Crestchic sales and Tasman’s operational leverage
PBT of £22k was admittedly modest (HY 2018, £1.5m loss). But this was ahead of where we would have expected in the first half, for a group on a recovery trajectory, when we had forecast zero for the FY. HY revenue leapt by 33% compared with our FY 2019 estimate of +10%. Revenue in the Crestchic electrical division rose 34% and the Tasman oil unit, which has higher operational gearing, delivered positive EBITDA. Group EBITDA rose from £1.8m to £3.4m and gross margins rose from 39.7% to 44.7%. Net debt fell to £8.5m from £8.7m at YE 2018 and £9.5m at HY 2018 and has fallen to £7.0m by the end of August 2019.
Estimates raised for FY 2019F; no change (as yet) for FY2020F
The group is “confident of trading volumes for the remainder of 2019”. We have raised our FY PBT estimate from zero to £0.3m, reflecting increased revenue assumptions partially offset by increased costs and a bigger loss in the recently established Malaysian JV. We are maintaining our FY 2019F PBT estimate of £2.5m but believe for now this is conservative.
Option of reinstating dividend to move up the agenda?
An interim dividend was not proposed, but with a strengthened balance sheet and strengthening cash flow, notwithstanding, further organic opportunities to grow the business, we believe the question of the dividend is likely to rise up the agenda.
Valuation
Due to the high depreciation charge, we believe Northbridge Industrial Services EV/EBITDA is currently the most appropriate valuation measure. For FY 2019F, this is 6.7x, falling to 5.6x for FY 2020F, based on YE 2018 net debt (6.3x and 4.8x respectively, based on forecast net debt).
