Further to this post covering a selection of high dividend yield and low PE companies, here are more details on Braemar Shipping Services (LON:BMS), the second largest shipbroker listed on the London Stock Exchange. They provide broking and consulting services to the global shipping industry across four divisions: Shipbroking, Logistics, Technical and Environmental Services. According to the company these segments “offer a unique set of skills and related services for clients”.
Shipbroking accounts for around 75% of total revenues with the rest split fairly evenly between Logistics, Technical and Environment Services. The shipbroking business benefits from a globally diverse client base, activity in all the major bulk shipping markets and good order book visibility; all of which has helped generate stable earnings in the past.
In the last 10 years adjusted earnings per share have tripled, revenue is up fivefold and the dividend has more than doubled. The average return on equity is over 18% and the return on retained earnings has been around 20%. These results have been consistent with growth in revenues, earnings and dividends in almost every year. 2009 saw a reduction in profits due to the global recession, but most of this has been recovered in 2010.
The company’s excellent results have been driven primarily by growth in global trade and increased demand for natural resources around the world. Although the company has performed well over the last 10 years there does not seem to be any particular competitive advantage beyond being a market leader and a well run company. Their chief rival Clarkson (LON:CKN) has in many ways had a better run of it over the years, so there is the chance that Braemar has had good results solely because of the industry they are in.
Looking to the future, their strategy is to build a broadly-based shipping services group around the core shipbroking business. Growth is expected to be driven by expanding shipbroking geographically, especially into the East.
Estimating future earnings using returns on equity and retained earnings gives an estimated total return in 5 years of almost 160%. Estimating earnings using the historic earnings growth rate gives an estimated total return of around 175%. Typically I want to see a minimum estimated return of 100%, although this level is entirely arbitrary.
Questions remain over whether the company will be able to continue to grow as it has in the past, which is really a question about whether growth in global trade will continue at a similar pace. The answer can only be guessed at, but as long as there is an increase in global GDP is it perhaps likely that global trade will continue to advance. This level of uncertainty is inevitable when investing in equities.
For my Braemar Shipping Services price target and other company analysis, see my blog here.
This article is for information and discussion purposes only and nothing in it should be construed as a recommendation to invest or otherwise. The value of an investment may fall and an investor may lose all their money. Any investments referred to in this article may not be suitable for all investors. Investors should always seek advice from a qualified investment adviser.