Northbridge Industrial Services (LON:NBI ) trading update for the year to date has outlined the increasing range of near and medium-term strategic opportunities the business is seeing as activity levels across Europe recover to pre-COVID-19 levels.

Trading Update Year-to-Date

The Company outlined  that whilst the impact of the ongoing COVID-19 pandemic is waning as the year progressed, trading during 2Q20 were ‘severely affected’.

However, the industrial services and rental company said it has seen some stability returning to the markets during 3Q20, with ‘good progress towards normality’ in 4Q20 to date.

‘This is especially noticeable at Crestchic, the company’s power reliability business, where routine testing has been buoyant and two large rental projects, in leisure and utility power support in Europe and the USA, were undertaken,’ the company highlighted to investors. 

Building Back Greener

Northbridge said there is a renewed sense of urgency from national governments to move quickly to a sustainable Net Zero Carbon by 2050, and this has been enhanced by plans to "build back greener" following Covid-19 and a rising focus and regulation on ESG measures. 

The company said Crestchic's reliance on customers from the oil and gas industry has decreased ‘naturally over the past five years’ while growth across its power reliability markets in advanced economies continues and new services are also added to its portfolio.

The group added that recent expansion in the demand for data centres has been further accelerated by increased online working and shopping patterns in response to the pandemic. 

It said Crestchic's electrical engineering design and technology capabilities have put Northbridge in a prime position ‘to increasingly benefit from this rapidly growing demand for reliability and sustainability in the advanced economies.’

Crestchic is considering expanding its service offering to include further work with high voltage systems and batteries while long-term opportunities are also likely to arise when there is a stronger penetration of hydrogen fuel cells into back-up power systems in place.

Tasman Successfully Pivots to Green Energy

Tasman's performance, the group’s oil tools division, reported that the Oil & Gas markets were severely impacted by international travel restrictions during the early part of the year when lower energy prices were already depressing the market.

This has meant Tasman's hire fleet is now predominantly used to drill for gas and geothermal fluids rather than oil and, more recently, for carbon capture projects in its main markets in Australasia.

Investment in LNG and natural gas, particularly in its core market of Australia, is set to rise during the immediately foreseeable future, as it is both a key transitional fuel to replace high carbon content alternatives, and a prime component for "blue" hydrogen (H2) manufacture. 

The company added that substantial investment is now being allocated by governments to kick-start a move towards a hydrogen-based economy

Outlook

Overall, the Board confidently expects the Group to be profitable for the full year, before exceptional costs, with Tasman trading ahead of 2019 and expects to start 2021 with a record new-year order book for the sale of loadbanks and a backlog of enquiries for rental projects.

‘A substantial proportion of the future capital investment of Northbridge is now targeted towards increasing revenue in these high growth markets related to power reliability where there are longer-term opportunities with higher returns on capital,’ the statement added. 

Shares in Northbridge have increased by over 25% in the past month to open 4.79% higher this morning at 87.5p following the announcement.

Reasons to Follow NBI

Northbridge Industrial Services is a global provider of specialist industrial equipment. Operating through five major international hubs with a worldwide support network of depots and agents, Northbridge is able to service the global demand for its products.

The group told investors back in August 2020 that overall trading performance for the six months ended 30 June 2020 has remained resilient despite the coronavirus pandemic. 

The industrial services and rental firm said total revenue for the period was down by just 4.8% compared to last year, primarily in the second quarter as the UK lockdown took effect. 

Its rental operations were also affected by the lack of access to customer sites, border closures, quarantine regulations, and a lack of rig crews due to international travel bans.  

Despite this, the group said its UK manufacturing site maintained production and deliveries throughout and orders for the sale of load banks have remained ‘at record levels.’ 

Again, it highlighted that towards the end of the second quarter it had experienced the beginning of a return of some rental volumes, particularly in Crestchic power reliability work. 

Crestchic manufacturing started 2020 with its largest ever new year order book for the second consecutive year and continues to perform ‘exceptionally well’ it said. 

Compelling Valuation

Research from PMH Capital has completed a ‘sum of the parts’ valuation for NBI indicating a price target of 175p for the Group, almost 100% premium to todays’ share price at the open.

Figure 1; Sum of the Parts Valuation - p/share (fully diluted)
 
[Source; PMH Capital]

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