Nordic Group

[Polaris]

@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*

[Bluechipfan]

@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*

Thanks for your view.

Vested with SRS money.

[turnngrow]

Polaris,

Thanks for sharing about the part on bankers. On her automation biz, I think the profit from MRO biz should become more visible and significant, as Nordic has already delivered 1,000 vessels in the past, with about 50% completed over last 3 yrs.

Second area would be the precision engineering which it has been securing MNC customers. And it is moving up the chain by providing system level service by incorporating enclosure and coating solution.

I also see a strong management team with many holding shares in Nordic.

[Polaris]

Nordic announced 1Q 2015 results:
Overall a strong set of yoy results.
1Q 15 Revenue is $16.613m, up 15% vs 1Q14 of $14.421m.
1Q 15 PBT is $1.65m, up 66% vs 1Q14 of $996k.
Repaid $5.4m of loan in 1Q.
Company also hinted at strategic partnership for PE division.

[shawn_sass]

Nordic announced 1Q 2015 results:
Overall a strong set of yoy results.
1Q 15 Revenue is $16.613m, up 15% vs 1Q14 of $14.421m.
1Q 15 PBT is $1.65m, up 66% vs 1Q14 of $996k.
Repaid $5.4m of loan in 1Q.
Company also hinted at strategic partnership for PE division.

I agree with you that 1Q15 results were good. Even before acquisition of Austin Energy, Nordic is already growing profits and revenue at a healthy rate.
The $5.4M loan repayment from the cash reserves was IMO, a wise move by the company.

I think going forward, Nordic will continue to grow, even in a somewhat cyclical and volatile industry.

(vested)

[Polaris]

NORDIC GROUP LIMITED
Registration No: 201007399N
(Incorporated in Singapore)
RESOLUTION PASSED AT EXTRAORDINARY GENERAL MEETING HELD ON 29 APRIL 2015
The Board of Directors of Nordic Group Limited (“the Company”) is pleased to announce that at the
Extraordinary General Meeting of the Company held on 29 April 2015, the ordinary resolution relating
to the adoption of the Share Purchase Mandate as set out in the Notice of Extraordinary General
Meeting dated 14 April 2015 was duly passed.
BY ORDER OF THE BOARD
CHANG YEH HONG
Executive Chairman
Date: 29 April 2015

Presentation slides:
  Nordic Group Limited_Slides Presented during EGM_27 May 2015.pdf (Size: 1.35 MB / Downloads: 15)

[Polaris]

Nextinsight summarises very well the key points of the 1-hour EGM:

http://www.nextinsight.net/index.php/sto...tin-energy

[shawn_sass]

Nextinsight summarises very well the key points of the 1-hour EGM:

http://www.nextinsight.net/index.php/sto...tin-energy

Polaris, did you attend the EGM?
I wonder if any VBs attended and asked management any insightful questions - care to share?

What I thought would have been interesting was to pay Austin Energy's owner with some Nordic Group shares.

-vested-

[Polaris]

Nextinsight summarises very well the key points of the 1-hour EGM:

http://www.nextinsight.net/index.php/sto...tin-energy

Polaris, did you attend the EGM?
I wonder if any VBs attended and asked management any insightful questions - care to share?

What I thought would have been interesting was to pay Austin Energy's owner with some Nordic Group shares.

-vested-

I was at the EGM. One investor asked why Nordic did not use issuance of new Nordic share to buy AE. The answer from Chang was he feels that Nordic shares is undervalued and using cash would be cheaper. Also he doesn’t want to dilute existing shareholder’s stake in Nordic.

The investor probed further, did ex-owner of AE prefer cash or Nordic shares? Chang answered that because AE ex-owner is 65+ yrs old and having health issues, cash is what is most practical to him. One of the Independent Director, Juliana Lee, later quipped that the ex-owner probably didn’t realised that Nordic share is much more valuable. Her comment turns out to be very true. On 11 Mar, the day before the acquisition was announced, Nordic was trading at only $0.128/share. Now Nordic is trading at $0.19. The ex-owner of AE could have gotten 50% more if he has got Nordic shares instead.

Of course, there is this lingering thoughts that if the ex-owner were to maintain a stake in AE, whether through not selling entirely of AE, or through keeping some Nordic shares, he will be more motivated to want to see the new AE to continue to be successful.

In my view, Nordic already got a very good deal. You can’t have everything.

[turnngrow]

Multiheight + AE = Possible Spin Off ?