Nordic Group is a Singapore-listed diversified group of companies providing solutions in areas of automation and systems integration; maintenance, repair, overhaul and trading; precision engineering; scaffolding; insulation services; petrochemical and environmental engineering services; cleanroom, air and water engineering services and structural engineering and construction services.


After two years of rising, reaching a record in 2022, some financial metrics of Nordic Group have been turning down this year. 

The 9M2023 net profit was $13.6 million (-18% y-o-y), representing 2 successive quarters of decline.

And this may be why the recent stock price (37 cents) is at a 52-week low.

Viewed against a wider backdrop, however, Nordic looks to be on a stronger footing than it has ever been.

Consider its orderbook, which is higher than pre-Covid years.



orderbook11.23Source: CompanyThe orderbook stood at $233 million at end-2022, and $188 million at end-3Q2023, reflecting Nordic's ability to better win jobs than pre-Covid.

Thus, 9M2023 revenue rose 8% y-o-y.

But profit declined 18%. These were due to factors beyond Nordic's control: 

• higher foreign worker levies imposed by the government,
• higher dormitory costs post-Covid for housing its workers, and
• certain additional labour costs.

As Nordic replenishes its orderbook with new contracts, these higher operating costs are likely factored -- to some degree - into its tender prices.

So .... will 2023 be a transition year and will 2024 see at least some restoration of profit margins? 

Meanwhile, Nordic's business continues to generate a lot of cash, which enables it to 1) pay 40% of earnings as dividends and 2) to make acquisitions.

On the latter, it recently announced a proposed $5 million purchase of Avon Industries. It's the smallest acquisition ever (see table) but perhaps no less attractive in Nordic's larger scheme of things.

Nordic Group’s M&A history

2011
Multiheight Group

2015
Austin Energy

2017
Ensure Engineering

2019
Envipure Group

2022
Starburst

2022
Eratech

2023
Avon

$29 m

$26 m

$17 m

$14.8 m

$59.1 m

$10 m

$5 m

All are 100% acquisitions paid for in cash.



Avon constructs, designs and builds, and maintains fuel dispensing systems for commercial and military airports in Singapore.

Stock price

37 c

52-week range

40.5 – 58 c

PE (ttm)

7.5

Market cap

S$148 m

Shares outstanding

399.7 m

Dividend 
yield 
(ttm)

5.2%

1-year change

-22%

Source: Yahoo!

As with past purchases, Nordic looks beyond Avon's current capabilities and profits. (Avon made approximately S$560,000 in 1H2023. Not a big profit relative to Nordic's). 

Two key points for the rationale of the acquisition:

• In its business, Avon acts as a sub-contractor, and its business potential - ie contract orderbook, revenue, profit and profit margins -- can be enhanced by Nordic's balance sheet and in-house capabilities, according to management.  

• Through cross-selling, Avon is also seen as being able to bring in new customers for Nordic's existing suites of products and services such as electrical and instrumentation services as well as fabrication, scaffolding and insulation services. 

These 2 points are the core of Nordic' playbook in making acquisitions. 

Another point: Don't overpay.

The net tangible assets of Avon as at 30 September 2022 was approximately S$5.1 million

A condition for the purchase is that Avon will have cash and cash equivalent at bank of not less than S$2.0 million (with allowance for reduction of up to S$500,000 for material purchase for existing projects) on the completion date of the acquisition.

As at end-3Q2023, Nordic had borrowings of $85 million and cash of $59 million, translating into net debt of $26.3 million.

Nordic is comfortable with its net debt level. See chairman's comment below at an investor briefing this week in response to a question.

Chang quote11.23


The PowerPoint deck for the 3Q briefing is here

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