LON:NBI | AIM Prospector Story Of W/e January 16th, 2015 - NBI

17th Jan '15 by AIM Prospector

3 comments 3644 reads

Hi,

Once again, I'm tempted to highlight shenanigans at Rangers International Football Club (LON:RFC) for story of the week. There continues to be an acrimonious battle for ownership of the club. What is clearly needed is for a serious buyer to come along with a sockdolager offer for the club that will make current shareholders bite their hands off.

Instead, it seems that a stream of inadequate wannabes are trying to take control of a business that they cannot afford.

Again, it is tricky to write about Rangers International Football Club (LON:RFC) as it is such a fast-moving situation.

I was going to fall back on an old favourite Goals Soccer Centres (LON:GOAL), who announced decent trading and confirmed that they would be opening another soccer centre in the US in 2015.

However, after some thought I've plumped for Northbridge Industrial Services (LON:NBI). The company is a manufacturer and lender of heavy power equipment. A typical piece of apparatus is a 'loadbank' --- a device used to test the effectiveness of a power generator. Obviously, it would be unwise only to test a generator when it is required. Most of Northbridge's customer base is obviously heavy and remote industry and anyone that requires an uninterrupted power supply (hospitals, banks). Northbridge also manufactures transformers. The third part of the business is the old Tasman Oil Tools operation that rents tools to the Australian oil and gas business.

The shares have come under pressure in recent months, likely due to the decline in oil price and expectations that a supplier to the industry, such as Northbridge, would suffer.

Northbridge Industrial Services (LON:NBI) shares spent much of 2015 priced at over 500p, and traded around 600p for the first two weeks of September 2014. However, since December, the shares have been in steady decline, their lowest point being 360p on January 9th.

Northbridge wisely issued a trading statement last Monday:
http://www.investegate.co.uk/northbridge-ind-serv-...

...too early to assess any longer term impact for the Group as a whole should the oil price remain at the current level or fall further. While those parts of the Group directly servicing the Oil and Gas sector would be impacted…

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janebolacha

14th Apr '15

Today's results announcement from NBI brings, imo, a much-needed and overdue touch of reality to expectations around NBI and perhaps ought to be a caution sign for other suppliers of both capex and opex equipment to the oil and gas sector:

"Capital investment in the oil and gas industry as a whole has seen a noticeable reduction in almost all areas of operation and recent M & A activity amongst the majors will lead to further consolidation in a sector which includes many of our key customers. Underlying demand for our goods and service will take some time to stabilise and, as current contracts unwind, replacement contracts are likely to be harder to secure."

I'd extrapolate that to other companies where share prices have recovered somewhat over the last couple of months but where, imo, investors are ignoring the basics of this now being very much a buyers' market with volumes and margins likely to be squeezed severely. Oil looks likely to be below US$60 pb for some time but you see numerous remarks on bulletin boards along the lines of "when the oil price picks up, then........."
Imo, this ignores likely outcomes.

mrwhits

Hi Jane/AimP,

some are doingOK, take a look at GetTech, GTC.L they seem to be on the up and winning new work in the sector, and still rated cheaply IMHO.

Regards

mrwhits

AIM Prospector

15th Apr '15

Hi janebalocha,

Northbridge's announcement yesterday highlighted the cyclicality of some of its operations. As you have suggested, the length and depth of such cycles is hard to forecast and profits go with that.

Now, there might be some that will conclude that Northbridge is therefore a low quality of earnings business.

Well, lower than some perhaps but it does not appear that Northbridge is loss-making. Given the turmoil in the energy industry, I would posit that Northbridge's earnings are of higher quality than many.

Encouragingly, the level of quotes and enquiries in both our oil tool rental business and Crestchic businesses remain at a good level although revenue visibility at this stage is poor. Although the timing is not yet clear other parts of our business, most notably those involved in power reliability and power projects, should fare better, particularly in those countries whose economies are now beginning to grow again. This growth will be supported by the lower price of energy in the more advanced economies

I imagine that the oil tool rental business is more exposed to the cycle.

Looking at the longer term, bigger picture, Northbridge has seven years of successive dividend increases behind it. Few AIM companies have managed that. The long-term trends that led to high energy prices (global population growth, industrialisation, increase size of middle class, declining low-cost resources) have not gone away.

I expect to get around to writing about Northbridge in an AIM Prospector one day soon. It is a company of considerable merit.

David O'Hara

Editor, AIM Prospector

AIM Prospector story of w/e January 16th, 2015 - NBI

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