13-05-2015, 02:23 AM
Quote:@Polaris, I've noticed most posts are from you and clearly you are the expert when it comes to Nordic Group.
I am thinking of initiating a position soon, but would like to pick your brain on the following:
1) What do you think of their gearing at 0.47?
2) Going forward, when they acquire Austin for S$26mil (..."financed through a combination of internally generated funds and bank borrowings"), I assume the gearing will go up. What do you make of the increased gearing?
3) After 1.1mil + 530k + 550k recent private share purchase by the three largest shareholders, it definitely shows some confidence. Float is getting smaller (less than 30% now). Since Nordic is listed on the Mainboard, do you think the company will do a share consolidation to meet the $0.20 requirement?
P.S. Little nugget I found in the AR, two of their senior management members are also in the top 20 shareholdings list. (one is holding 5+mil shares, and the other 1+mil shares)
Cheers.
(not yet vested)
Shawn_sass,
Sorry I’ve been busy last few days. I will try to answer your questions here:
1) Gearing at 0.47
I agree with turnngrow’s comment. The key here is cash-generating ability. From the management, in 4 short years, Nordic has already fully repaid (or almost) the loan it had taken for the acquisition of Multiheights.
Interestingly, at the point when Nordic acquired Multiheight, there was only one bank that was willing to finance the acquisition. This time round for acquisition of Austin, there were 4 banks jumping “head over heels” trying to get Nordic’s business, and Nordic now has the option to choose which bank they prefer to work with. : )
Bankers are conservative lots. Their keen interest is as much a reflection of their confidence in Nordic’s acquisition track records, as well as in Austin’s cash generating ability.
2) Same answer as per 1) above.
3) Share consolidation
The management has indicated that instead of doing a cosmetic exercise through share consolidation, they will focus their management time and effort on improving the business fundamentals of the company, and hopefully, the share price will catch up.
Nordic has taken taken the following steps, some strategic, some operational:
→ Acquisition of Austin: The acquisition of Austin is an important strategic move that many do not realize. Multiheights (supply scaffolding) and Austin (supply insulation and fire protection) both serve the same customers and in the same location (Jurong Island). To carry out insulation and fire protection work, Austin will need to use scaffolding, and they currently do not use scaffolding supplied by Multiheights. And some petrochemical client in Jurong Island prefers to deal with one contractor for both scaffolding and insulation/fire protection works, and as a result, Multiheights was not able to penetrate some client in the past. It is obvious the significant synergy of having both business under Nordic,... in areas such as product differentiation from competitors, lowering of costs, cross selling, etc. There is also the potential of strengthening relationship with key client and hence deepening the moats.
→ Austin’s PBT was S$9mil in the latest financial year before Nordic’s acquisition. It is a well-known fact that when business owner sell their business, they always time their sale to PERFECTION, in order to achieve the highest selling price for their business. This is a normal behavior and nothing surprising. Hence, it would be naive to expect that post-acquisition, Austin will continue to contribute $9mil to Nordic’s bottom-line straightaway and every year. Let’s assume Austin’s post-acquisition contribution is 50% of S$9mil, which gives about $4mil per year. This will add $0.01/sh to Nordic’s FY2014 EPS of $0.0197, bringing it to about $0.03/sh. The above is considering only their respective existing businesses and not counting the potential of synergy yet. Drawing from the experience of Nordic’s acquisition of Multiheights, it is unlikely the above earnings potential will be fully realized in FY2015. However, I think FY2016 could be a phenomenal year, where Nordic’s earnings will include full-year contribution from Austin, and the bulk of the profits of two newly announced projects, Chevron project (S$7mil) and Exxon Mobil new chemical plant (S$4mil).
→ Expanded product offering: During the quarterly briefing, Nordic has taken pain to explain their strategy of expanded product offering, to increase their sales and grow their profits. They recently entered into OEM agreement with Praxis from Netherlands and PSM in UK. Previously, for Nordic System Integration Div (basically valves & actuators system), each project is worth about $200-250k in value. With the expanded product offering, the SI division is targeting a per project value of up to $2mil. Not to pour cold water, I think the above is a long shot. But I’m not complaining. For at least I know the management is focusing on the right things – to grow the sales and profits of the company.
—> New dividend policy: dividend payout ratio of 40%. Based on projected FY2016 EPS of $0.03, at the current share price of $0.180, the dividend yield is 6.7%.
—> Share Purchase Mandate: the company has a mandate to buy back 10% of the total number of issued shares, which is 40,000,000 shares. In my view, if the share price fall below 20ct even after they have delivered good fundamentals, the company has this final sure-win weapon to use. Is that not a good enough assurance?
To take a new position in Nordic, I believe, is to enter into a long-term commitment, and then be very patient and wait. The timeline has to be at least 2 years.. in order to reap the rewards.
*vested*