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Expect much better earnings with potential acquisition and organic growth. The potential acquisition of Austin is estimated to boost net income by at least S$5m p.a. going forward. If we add this to FY14’s net income of S$7.9m, total income would be S$12.9m, or 3.2c per share which implies Nordic is currently trading at a low P/E ratio of 5 while locally listed peers are trading at 10-15x.
We think that this back of the envelope calculations underestimate the potential organic growth, given that net income has been growing at ~30% for the past 2 years and Nordic has >S$38.9m in orderbook for delivery till FY2017.
Not worried about integration risks. We will KIV if Austin will be eventually acquired, as the MOU is non-binding. Although the acquisition size is large, we are less worried about execution risks given that the management has the track record and experience in the successful integration of Multiheight Scaffolding (MHS), which was previously acquired in 2011.
The downside of the S$26m potential acquisition is further mitigated as the net tangible asset of Austin shall not be less than S$14.5m during completion of acquisition.
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Precision Engineering (18% of FY14 sales) builds and designs tooling systems, as well as provides turnkey production solutions.
Worth at least S$0.19. If Nordic acquires Austin, the company should trade minimally at S$0.19, equivalent to 6x (trough valuation multiple) of our conservative estimates of FY15 earnings.
With a 40% dividend payout ratio, investors may look forward to 8% dividend yield at today’s price. Upside abounds given that over the last 2 years, there has been consistent growth in sales, earnings and profit margins with strong cash flows while the order book has expanded.
