The potential superstock of the week is a Singapore company named Nordic Group Ltd. This was a stock that I have blogged on one and a half...

Weekly Superstock Scan 31 Jan 2018 - 2 Feb 2018: Nordic Group Ltd (SGX:MR7)

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The potential superstock of the week is a Singapore company named Nordic Group Ltd. This was a stock that I have blogged on one and a half year before. Eighteen months later, at three times the price, Nordic still passed the technical and fundamental screens and I am not hesitant to flag it as a potential superstock again despite its higher valuation.





To recap, Nordic Group Ltd operates in the following areas:
  • Systems Integration division: turns systems into solutions by providing Flow, Automation and Navigation solutions
  • Maintenance, Repair, Overhaul & Trading division: provides after-sales service support for the marine, oil & gas and infrastructure industries
  • Precision Engineering division: designs and builds tooling systems, and provides turnkey production solutions for the aerospace, marine, medical, oil & gas, and electronic manufacturing industries
  • Scaffolding Services: provides comprehensive safety certified scaffolding system works for process, construction and marine industries
  • Insulation Services: specialises in insulation and passive fireproofing.

Technical




This stock has a steep rise from 20 cents in mid 2016 to slightly above 60 cents now. Since October 2017, the price of Nordic was restricted to a box from $0.515 to $0.575. Last week, price broke above the box to close at $0.62. The trading volume of the week was 2.4 million shares, 1.7x its average weekly trading volume.

There was no news that lead to the spike in price. The quarterly results is also not due till mid to end February, so I am unsure of what lead to the spike in price.


Fundamentals


Nordic Group has been very consistent when it comes to growth. Including the most recent quarter, Nordic Group has reported 14 consecutive quarters of year on year EPS growth. Nordic's group internal target is to grow by 20% annually and it has achieved its goal for the past six years.

Acquisition of Ensure Engineering

In 2017, Nordic Group added Ensure Engineering to its stable, cementing its expertise in the petrochemicals sector and opening up new revenue streams from Singapore's National Environment Agency and PUB, the national water agency. 

The acquisition of the engineering services firm will also provide Nordic with a more stable income source, as almost all its revenues are derived from recurrent maintenance contracts that typically span one to five years. 

The acquisition of Ensure Engineering was a key contributor to Nordic's revenue and profit growth in the past two quarters.

No Analyst Coverage

Even with its phenomenal growth in the past few years, there is no analyst coverage on this stock. There is no worry on a cap in price from analyst's target price, and investors will have difficulty valuing the company, creating tremendous opportunities.

Strong Management Support 

The directors of the company own more than 70% of the stock, showing strong support for the company. The high level of management ownership also implies a higher chance of a buy-out.

Matrices
- Small float of 75 million shares with a average daily trading volume of 0.16 million shares. The float is thus almost 470 times its average trading volume.
o Nordic is trading at 16.9 times its trailing twelve months EPS.

Risk Factors/ Things I do not Like


  • Dependence on the Oil and Gas Industry - When oil price plunges, the demand for services in the upstream sectors (Drilling, production, transport) is expected to fall. Despite Nordic Group's attempt to diversify their business downstream and into other industries, their clients are still concentrated within the oil, gas and marine sectors.
  • High Valuation - Its current valuation is on the high side. Even though Nordic Group is consistently growing, its growth rate may not be able to support a higher valuation and hence the upside of the stock may be limited. At least we will not be seeing the triple in price that we saw for the past two years.



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