changyehhong5.16Nordic Group executive chairman Chang Yeh Hong fielding more questions after the 1Q16 results briefing. Photo by Leong Chan Teik

DESPITE COUNTING oil and gas companies as its clients, Nordic Group has continued to report robust results during the current oil industry downturn.

As to the reasons, anyone not familiar with Nordic's business could still guess that:

(1) the services that Nordic's services are necessary even when the oil industry is in the doldrums, and
(2) its customers tend to be sticky, somehow preferring Nordic to other service providers.

Nordic stock price  18.5 cents
52-week range 13.7-24 cents
PE (ttm) 6.6
Market cap S$72.9 million
Shares outstanding 394.0 million
Dividend yield
1Q2016 net profit S$2.3 m
1Q2016 net operating cashflow S$3.1 m
Sources: Bloomberg, Nordic  

He might also guess that Nordic's business has relatively high barriers to entry.

All these guesses are indeed correct. 

Thus, Nordic has reported a 60% rise in net profit from S$1.5 million to S$2.3 million for 1Q2016.

If not for S$737,000 of forex losses, the net profit would have risen 100%. 

The 1Q revenue (S$19.8 million, up 19% y-o-y) was largely based on an overall stable business and topped up by a maiden contribution from Austin Energy.

As it was acquired in June 2015, 
Austin will also boost Nordic's 2Q16 results y-o-y.

Thus the 1H2016 profit will likely be substantially higher -- and so will the interim dividend be, assuming Nordic maintains its stated payout ratio of 40%.

The interim dividend in 2015 was 0.4 cent a share.

Making a daring leap of faith, one may hope that the entire year's dividend yield would be higher than the trailing 5.7% (see table).

Certainly, Nordic's business has the cashflow to pay nice dividends. Its 1Q16 operating cashflow was $3.1 m while the spending on PPE (property, plant and equipment) was only $196,000.

Cashflow is what Nordic's management prizes and will continue to rate it highly when looking for the next acquisition. Not only does it have to be in the oil & gas industry, it has to be a "business that is like an ATM, generating lots of cashflow," said Mr Chang Yeh Hong, the executive chairman at the 1Q2016 results briefing last Thursday (19 May).

"If it's a company whose value is largely in assets such as factories, I'm not keen."

DorcasTeo5.16Nordic Flow Control CEO Dorcas Teo explaining the sytems integration business segment.
Photo by Colin Lum.

♦ Beyond scaffolding and insulation services
”What’s beneficial for our customers is this: We can have the same number of workers there doing more than one type of work. Currently, the customers use several sub-contractors. One sub-contractor has 30 men, another has 100 men, yet another has 20 men. Each sub-contractor concentrates on one type of service. As a result, there are many workers in the plant, which plant owners don’t really want for safety reasons and other reasons. They want the headcount to be down.”

-- Chang Yeh Hong
Mr Chang spoke about a key initiative to broaden Nordic's business with existing customers beyond scaffolding and insulation services.

Nordic, after a study of its customers' needs and their feedback, has set about cross-training its workers in order for them to take on more types of jobs. 

Nordic has identified the following new services it would offer: rope access, blasting and painting, coatings, non-destructive testing (such as X-ray) and electrical and instrumentation. 

Nordic will add technical people or even acquire a business in order to be able to extend its capabiltiies.

For their part, oil majors prefer to have limited headcount in their plants for maintenance work owing to various reasons, including safety. Thus, they would welcome it if Nordic's maintenance contracts can encompass a wider range of services without additional headcount, said Mr Chang.

The Powerpoint slides used in the 1Q2016 results briefing are here.

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