Strong growth game in decarbonisation, battery storage and data centers

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  • Adjusted first half profit before tax breaks breakeven to £ 1.3million
  • Robust order book, order intake and trade exceeding market estimates
  • The divestiture of Tasman’s underperforming drilling tools business will make the group a pure game on high-growth load banks and transformers

Analysts have pushed until the third profit hike for Northbridge Industrial Services (NBI: 171p) after the industrial and rental services group more than quadrupled first half operating profit to £ 1.6million on revenue 22% higher at 19.5million of pounds sterling.

The main driver has been Crestchic, based in Burton upon Trent, a company that manufactures, sells and rents load banks and transformers to national and international customers. The products are mainly used for commissioning, testing and maintenance of independent off-grid power sources and, increasingly, for grid stabilization, as aging national infrastructure faces the double challenge of integration of renewable energy production and environmental problems posed by global warming. Specifically, Crestchic’s products ensure the reliability of power generators and distributors, for industries heavily dependent on standby power to ensure business continuity in the event of their primary power supply failure.

The activity benefits from growth in two key sectors: renewable energies and data centers. The transition from coal and petroleum-based energy sources to cleaner, renewable energy is leading to a proliferation of small power producers whose sites require commissioning and who have unique challenges in connecting to grids. distribution established. In turn, this creates an increased need for testing which is driving demand for Crestchic products, both outright sale and rental. Its load banks are comparable to the most advanced and resilient systems available in Western economies for this purpose.

In addition, battery storage farms are playing a greater role in ensuring the flexible operation of power systems and are increasingly integrated into the UK power grid. Crestchic offers high voltage load testing at the grid / substation connection point to energy storage farms. The continued global growth of large-scale data centers is also generating significant demand for Crestchic solutions, as the digital economy accounts for an ever-increasing share of global GDP. Global internet traffic doubled between 2016 and 2019 and is set to double again by 2022, generating investments in new data centers and in the infrastructure that supports their power needs and reliability. of their diet.

These factors, and a greater proportion of higher margin rental income in the mix, explain why Crestchic’s operating profit nearly tripled to £ 1.9million on sales up 43% from 15, £ 8million in the first half. With a strong backlog, analysts at Equity Development expect the division to post annual operating profit of £ 5.5million (10% improvement) on top of sales. from £ 29.6million, which translates into a 24% increase in group earnings per share (EPS) to 8.7p.

In addition, Northbridge’s Tasman drill tool rental business is in the process of being divested, which is expected to write off net debt of £ 4.5million and leave the group like a game on a high-pressure business. growth that Panmure Gordon analysts expect from free cash. £ 6.2million in 2022. This is based on pre-tax profit up one-third to £ 4million on EPS of 10.4 pence (15% improvement) in 2022. Equity Development has almost identical forecasts and expects the board of directors to reinstate the dividend by declaring a 2022 payment for a share of 1.5 pa. On this basis, the shares are rated on a forward price / earnings (PE) ratio of 16.5.

The progress of Northbridge has not escaped investors, as the share price has risen 37% since I highlighted the opportunity just three weeks ago (‘Alpha Report: A High Growth Game on Battery Storage Boom “, September 7, 2021). Considering the scale of the updates, I increase my goal from 180p to 200p. To buy.

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