Braemar Shipping: Annual General Meeting Notes

10th Jul '11 by marben100

7 comments 8113 reads

Firstly, let me thank UK Value Investor for bringing Braemar Shipping Services (LON:BMS) to my attention, here and here. After my own research, I decided to add some to my high-yield sub-portfolio and attended their AGM on 22nd June to learn more.

See Braemar's annual report for details. Braemar's business comprises four areas of operation: i) Shipbroking, ii) Technical Services (Warranty services, Marine Consultancy, Vessel surveys etc), iii) Logistics & Environmental (Pollution control, salvage etc).

Investment metrics

What attracted me to the business, as an investor, is an attractive yield, backed by a strong earnings track record and sound balance sheet. Here is a summary snapshot of some key investment metrics (you should DYOR as the figures may not be up to date):

BMS	2010/11	2011/12f
Share price (p)	468.0
Shares in issue (m)	21.1
Mkt cap (£m)	98.7
Turnover (£m)	126.1	127.0
EPS (p)	47.4	48.2
P/E	9.9	9.7
NTAV (£m)	32.0
NTAV/share (p)	151.8
Net cash (£m)	25.6
Cash/share (p)	121.3
Dividend (p)	26.0	26.3
Yield	5.6%	5.6%
ROCE	19.7%
Year End	28th February

2011/12 figures are based on current broker consensus forecasts. Braemar has no bank debt.

I hold BMS within my high-yield sub-portfolio, as I believe it will offer a solid yield and a measure of inflation protection. Note that Braemar has so far continued to produce strong profits throughout the GFC (Global Financial Crisis). Founding directors continue to have "skin in the game" with around 12% of the shares between them.

AGM - General

The AGM, on 22nd June, was well attended, with around 20 shareholders present. I was pleased to see that well known poster "AliceInWonder1" was also there…

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Fangorn

10th Jul '11

hi Marben,

Thanks for the concise write up on BMS - this is one I've been following for a while, for the very reasons you highlight -

" An attractive yield, backed by a strong earnings track record and sound balance sheet."

Nibbled a while back, also for my high yield portfolio. Looking to add more on any general market weakness.

UK Value Investor

11th Jul '11

Thanks for letting me know Marben, it's nice to know somebody got some value from my investigations. Now we just need them to keep performing.

Isaac

26th Sep '11

Well I broke my rule of waiting for lower markets before putting some money to work - I was waiting for 4500 FTSE and lower. I have been watching BMS for a LONG time to get in at a good price.

Well I decided to put some money to work, albeit a small amount.

But when I look at the fundamentals it is hard not to put some money to work.

The company is valued at £59.5m, at the final results the company had £25.6m on the balance sheet, pre tax profits were £14.8m last year, it is on a current PE ratio of less then 6 and yields 9%.

Management own about 15% of the company.

They have a big office in Singapore, Asia is where the growth is so this is a plus point. Even if China slows down and the Economy grinds to a halt I don't expect it to last forever.

Infact anyone looking back at the 2008 recession when the BDI slumped will note BMS still did very well financially - refer to Mark's figures in the header.

When you strip out the intangibles the business is worth about £1.43/share.

The directors were buying shares around £4.50ish in recent months.

Downside from here is probably 25% back to £2 & upside is probably 100% over 3-4 years IMO. The 50% drop from the peak has probably priced in most of the downside which is why I was prepared to buy.

I really hope to hold onto these a very long time (and I mean years) and keep taking the 9% dividends, I will sell when the yield goes below 3% & am looking to pick up more if it continues to drop;

I think these are very very good times to build an income portfolio even if it is a case of drip feeding small amounts of money each month.

If BMS did'nt pay a dividend I would'nt be buying here as I have no idea how long the downturn will last, I am happy to buy as I am paid to wait for true value to be realised.

16th Dec '11

I'm still watching. Not been looking at this recently so had a quick look through the interim account that finally arrived.

Waiting to see how their finals come in as there was a worrying cash outflow at the operating level in the August interims. Cash balance down to £9.3m.

And with freight rates suffering from over capacity (despite growth in demand for chartering apparently the size of the new tonnage supplied dwarfed this leading to a fall in freight rates), as well as the current global economic fears and the likely contraction of trade, I feel it's better to wait and see.

Might even offer the chance of getting a bargain as I see they're currently at circa 315p

D1G3Y

2nd Feb '12

I dipped my toe in water and bought a few of these a couple of months ago for about 3.20. During that time the BDI has dropped significantly but the BMS SP has continued to creep up.

http://online.wsj.com/article/SB10001424052970204740904577196740634627990.html?mod=googlenews_wsj

"The Baltic Dry Index, a composite of commodity shipping costs around the world, fell for a 32nd consecutive session to 662."

"The index has plunged 59% this year alone and is down 94% from the peak hit just before the crisis hit."

My understanding is that BMS apply a margin to the total charter cost and as the daily rates represented by the BDI have reduced this will have the knock on effect on BMS revenues.

With 39% revenues and 70% margin coming from the ship broking division (2011 interim report) I am thinking of bagging my small profit.

I had hoped to keep these as a long term investment due to the approx 9% divi but with more ships due to be delivered this year the BDI could remain low for some time and that dividend does not look as secure.

I do note however that when the BDI fell sharply at the end of 2008 and remained low for 2009(compared to the previous year) this did not then correlate into reduced earnings for BMS

Am I missing something?

3rd Feb '12

I share the same concern D1g3y. BDI has collapsed in stunning fashion and, despite what several say to the contrary, I use it as a proxy for world trade(as I gather many do). BMS is seemingly not correlated at all, which I wasn't expecting.

But I do worry that the dividend looks unsustainable especially as the majority of profits come from its shipbroking business. Surely if world trade falls significantly, and with bulk carriers in abundant supply, BMS wont be earning the profits it has recently.

Marben100 however will be better placed to offer a concise update as, unlike me, he is invested and I've only paid them a cursory glance. They've had a nice run recently I've noticed though.

6th Feb '12

Spotted a bit more on this over on the FOOL

http://boards.fool.co.uk/yeah-its-basically-broken-down-in-its-usefulness-12469018.aspx

By BertEEE re the BDI "Yeah it's basically broken down in it's usefulness as an indicator because we saw a binge in ship building pre the crisis so now we have way too many ships all fighting for cargo. A lot of people have switched now to look at shipping volumes (which are rising reasonably strongly) but it's much more lagged unfortunately so you don't have such a good leading indicator as the Baltic once was."

Braemar Shipping: Annual General Meeting Notes

Investment metrics

AGM - General

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Marben100

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