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Is this former AIM star a recovery play? Northbridge is an equipment hire business. Customers include large energy users and the oil and gas sector. The first half loss and an indebted balance sheet recently pushed the stock to an all-time low. Shares in Northbridge trade at around 20% of their price just over a year ago. Value has evaporated as earnings have collapsed and management have been forced to warn that the company is in danger of breaching the agreements that it has with its bank, the ‘covenants’, that are essential to the bank’s ongoing support. It will take more than just a recovery in oil and gas prices for Northbridge shares to trade for over five pounds again. Any recovery in energy markets would have to feed through to confidence among producers, sufficient to push them into spending money with Northbridge again. With investors hurt so badly by the share price fall over the last 12 months, any improvement would have to be sustained for investor confidence to return. The likely covenant breach is frightening. However, management have given assurances that they expect to successfully renegotiate covenants and that the group is still delivering positive cashflows. The challenge for investors is to weigh the probabilities. The answers are probably best derived from current trading, historical trading and the 4

Northbridge’s equipment is used in heavy industry, frequently the oil and gas sector

balance sheet. Northbridge Industrial Services came to AIM in 2006 with the shares priced at around 100p. The announcement issued on the first day of dealings summed up directors’ ambitions for the business. Management declared that Northbridge “was incorporated for

the purpose of acquiring companies that hire and sell specialist industrial equipment such as generators, load banks... Northbridge will seek to acquire specialist niche businesses that have the potential for expansion into complete outsourcing providers; capable of supplying a non-cyclical customer base

including utility companies, the public sector and the oil and gas industries.” Northbridge immediately announced the acquisition of Crestchic, a manufacturer of electrical load bank equipment. A load bank is a special piece of electrical apparatus that is used to test a generator or backup power system. Another ten acquisitions followed. The most significant of these were the two ‘Tasman’ businesses. The first, Tasman Oil Tools Pty, was acquired for a total of A$16.9m in June 2010. Based in Perth, Australia, Tasman Oil Tools was described as a specialist “in the

rental of equipment for the onshore

December 2015 AIM Prospector  
December 2015 AIM Prospector  

Featuring BrainJuicer, Crawshaw, First Derivatives, Matchtech and Northbridge Industrial Services