From a value perspective, it was one heck of a deal that Nordic Group closed on 21 Nov 2019.

Nordic acquired 100% of Envipure, paying S$14.8 million cash to the vendors in one single tranche.

This is unlike its past 3 acquisitions where it paid in tranches and had clawback clauses.

There was no goodwill to pay for Envipure as the purchase was at NTA, unlike in the past when it paid a premium averaging S$10 million.

A well-established player in its space, Envipure (founded in 1987) came with a S$18.9 million orderbook -- and $14.8 million of cold cash in the bank before payment of accrued expenses of $3-4 million. 

(See earlier story for some background on the vendors: 
)


Envipure's orderbook is populated by blue-chip clients like Micron Technology in Singapore and government agencies such as the Public Utilities Board and Land Transport Authority.

Earnings-wise, Envipure was less than sparkling in 9M2019, earning pre-tax profit of $1.4 million on $32 million of revenue.


proforma12.19Executive Chairman Chang Yeh Hong owns a 55.6% stake in Nordic. NextInsight file photoBut Nordic's executive chairman Chang Yeh Hong is out to re-shape Envipure's business model.

Its initial attraction is that its current orderbook leans heavily towards maintenance work, instead of capital projects.

Thus, on a proforma basis, the maintenance segment's contribution to the Nordic Group's 9M2019 revenue would have exceeded 55% if Envipure were included.

This suggests greater steadiness going forward in Nordic's revenue stream.

Mr Chang outlined key ways 
to create greater profitability including:

Stock price

27.5 c

52-week range

24 – 42 c

PE (ttm)

14.5

Market cap

S$108 m

Shares outstanding

392 m

Dividend 
yield 
(ttm)

2.8%

1-year return

- 30%

Source: Bloomberg

Taking in-house the jobs that Envipure, an engineering business, used to subcontract.

Nordic already has capabilities in areas such as mechanical, electrical & instrumentation, scaffolding and insulation which it will apply to the jobs that Envipure secures.

At least 70% of such costs at Envipure can be saved, reckons Mr Chang.


Envipure's No.1 customer is semiconductor company Micron, which is in an industry that Nordic has not set foot in.

chia meng ruNordic CFO Chia Meng RuFortuitously for Nordic, the industry is recovering currently and Micron, specifically, is in the midst of building more facilities in Singapore.

Expect Nordic to proactively bundle its suite of services for Micron and other Envipure customers.

It works both ways. Envipure has products and services that Nordic will want to push out to clients in its existing space -- ie, marine and oil & gas, process, pharmaceutical and infrastructure. 

With the above measures, Envipure could well transfrom from Good to Great.

And Nordic now having a more diversified customer and industry base, come 2020, could return to a path of earnings growth. 

Management's interest is well aligned with minority shareholders: 5 directors/executive officers collectively own 75.8% of the stock, with Mr Chang himself owning a 55.6% stake.

Click here for Powerpoint presentation on 3Q19 results.


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