Northbridge Industrial Services (NBI ) said that it expects FY20 profit before tax and exceptional costs to be ‘modestly’ ahead of expectation, and slightly ahead of 2019.
The industrial services and rental company said trading in 2H20 showed ‘a marked improvement’ after a sharp Covid-19 related downturn in 2Q20 as a result of lockdowns.
The Group said that total revenue for the full year will be broadly similar to 2019, assisted by the ‘continued strong growth’ for the manufacture and sale of loadbanks from Crestchic, Northbridge’s division which designs, manufactures, sells and hires load bank equipment.
The Group noted that this helped mitigate the impact that lockdowns have had on rental revenue for its divisions, Crestchic and Tasman, in the middle two quarters of the year.
Rental revenue at Tasman, which specialises in the rental of oil and gas drilling tools, continued to recover year-on-year, due to the strong first quarter, despite the problems crewing rigs during the pandemic and quarantine rules in our sector of the market.
As a result, it expects profit before tax and exceptional costs to be modestly ahead of expectations, and slightly ahead of FY19, underpinning the recovery of all its markets.
The continued growth in factory output in 2020 was driven by demand from several markets and geographies, all of which are looking to ensure power reliability in critical industries as renewables play a increasingly significant role in the mix of electricity sources.
‘Worldwide data management continues to be a growing component of the demand for power, and the proportion of factory output going directly to end users in the data centre sector reached 22% during the year,’ the Company stated.
The Company reported that cash flow ‘continues to be strong’, while net debt (including the convertible loan notes) reduced further in the year to £5.4m (FY19: £6.4m).
Net bank debt was reported at £1.5m (FY19: £2.6m) while net gearing remains below 20%.
Outlook
For the third year in a row, Northbridge cited that its factory order book for the outright sale of load banks had started 2021 at a record level and 22% ahead of last year’s record high.
Rental activity, particularly in Europe, is slower to start, due to the much tighter lockdowns following the winter jump in COVID-19 infections. However, the Company told investors that it expects to recover quickly as the vaccine programme is rolled out further globally.
Demand is therefore expected to strengthen in 2Q21, ‘across all geographies, and grow again in the second half, supported by increasing demand and by a backlog of quotes and enquiries.’
Investors will be pleased with the FY20 financial outturn as management skilfully mitigated many of the operating challenges encountered during the year. Importantly for shareholders, the market backdrop is looking increasing positive for NBI as oil prices recover towards pre-Covid-19 levels and demand for power, particularly for data centres as the workplaces around the World move online, continues to ramp significantly. The forward order book is therefore particularly strong. Shares in Northbridge have increased by nearly 45% since the beginning of November 2020 and justifiably so given this financial result and outlook for FY21.
Reasons to 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.
In December 2020, the Group presented investors with a positive trading update and said the range of near- and medium-term strategic opportunities ‘continues to increase.’
It said Crestchic, its power reliability business, routine testing has remained ‘buoyant’ while two large rental projects, in leisure and utility power support in Europe and the USA, were undertaken. It said Tasman's performance in a market impacted by international travel restrictions and lower energy prices was ‘resilient, and trading will be ahead of FY19.’
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 the increasing global focus and regulation on ESG, it said.
The Group highlighted that Crestchic's reliance on customers from the oil and gas industry has decreased naturally over the past five years, as growth in its power reliability markets in advanced economies continues and new services are continually added to its portfolio.
While Crestchic benefits from new opportunities where energy storage battery farms are being integrated into the UK grid and require high voltage load tests, the Group said ‘longer term opportunities are likely to arise when there is a stronger penetration of hydrogen fuel cells into back-up power systems in place of the current reliance on diesel generators.’
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.
Its investment in LNG and natural gas, particularly in Australia, is set to rise ‘for 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 Group acknowledged that substantial investment is now being allocated by national governments globally in order to ‘kick start a move towards a hydrogen-based economy.’
‘A substantial proportion of the future capital investment of the Group 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 Company outlined to investors.
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