Braemar Shipping Services - investment grade?

Thursday, Jun 02 2011 by
4
Braemar Shipping Services  investment grade

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.


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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.


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Braemar Shipping Services plc operates in four segments: Shipbroking, Technical, Logistics and Environmental. The Company’s Shipbroking services include tanker chartering -crude oil, clean products, Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG), chemicals, Dry bulk chartering, Ship valuations, LNG consultancy, newbuilding and demolition. Its technical services provide energy loss adjusting, surveying, engineering and consultancy services. Its logistics services includes Port and liner agency, Ship-to-ship transfers, Hub agency, Customs clearance, Supply chain management, Freight forwarding, Worldwide consolidation, Project cargoes, Cruise ship support, and Recycling. Its environmental services include Pollution control, Incident response, Salvage services and Marine and port services. more »

Share Price (Full)
500.35p
Change
-4.8  -1.0%
P/E (fwd)
14.6
Yield (fwd)
5.3
Mkt Cap (£m)
147.4

Clarkson PLC is an investment holding company. Its subsidiaries are involved in the provision of shipping related services. Its segments include broking, financial, support and research. Its broking division represents shipowners and charterers in the transportation by sea of a range of cargoes. The financial division includes a futures broking operation, which arranges cash settled contracts for differences based upon standardised freight contracts and a financial and investment services division representing the provision of advice to clients on the financial aspects of a range of shipping-related transactions. Support includes port and agency services representing ship agency services provided throughout the United Kingdom and property services regarding the provision of accommodation. In November 2013, Clarkson PLC announced that Clarkson Port Services acquired Gibb Tools Limited. In January 2014, Clarkson PLC acquired Aquamarine Sweden AB, a provider of ship brokerage services. more »

Share Price (Full)
2363p
Change
13.0  0.6%
P/E (fwd)
16.6
Yield (fwd)
2.8
Mkt Cap (£m)
446.5



  Is Braemar Shipping Services fundamentally strong or weak? Find out More »


6 Comments on this Article show/hide all

Shocker 3rd Jun '11 1 of 6
1

I've been watching this for ages and ACM Shipping (LON:ACMG) for quite a while, but haven't bought as I too see their prices being underpinned by global growth... and I don't have great faith in that at the moment. Nevertheless, I can't look away... the ROE is compelling regardless of the macro picture. Would love to know what others think about it...

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Fangorn 25th Oct '11 2 of 6

BMS - FINANCIAL HIGHLIGHTS

· Revenue from continuing operations £61.5m (interim 2010/11: £67.6m)
· Pre-tax profit £5.0m (interim 2010/11: £7.2m)
· Pre-tax profit before amortisation and non-recurring income £4.8m (interim 2010/11: £8.0m)
· Basic EPS 17.60p (interim 2010/11: 25.99p)
· EPS before amortisation and non-recurring income 16.76p (interim 2010/2011: 28.79p)
· Interim dividend of 9.0p per share unchanged (interim 2010/11: 9.0p)
· Cash of £9.3m (31 August 2010: £14.8m) and no debt

Sir Graham Hearne, Chairman of Braemar, said:
"Shipping markets are experiencing a period of progressive weakness which has affected the performance of the group in the first half. In the light of this, we are taking measures to reduce costs, the full effect of which will not be felt until next year. These measures, combined with the capability of our non-broking businesses to make a greater overall contribution, give us confidence in the Group's resilience and we expect an improvement in the second half performance relative to the first half."

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marben100 25th Oct '11 3 of 6
1

In reply to Fangorn, post #2

I think I owe an apology to Sir Graham.

Whilst my analysis indicated that in the past there appeared to be little justification for Braemar's non-shipbroking ventures, today's results vindicate the benefits of diversification that he claimed at the AGM. Though shipbroking has been somewhat hammered by the weak market conditions, with segment profits halved compared to the equivalent half last year, note 5. to the accounts shows that Braemar's other businesses (technical, logistics and environmental) have come good and have shown strong profits growth, leading to a respectable overall result, in the light of the earlier profit warning.

I find it encouraging that Hearne is able to say:

we expect an improvement in the second half performance relative to the first half.

Let's hope this half-year marked a bottom in Braemar's fortunes. The dividend sure is sweet, (around 8% yield) while we wait!

Cheers,

Mark

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Isaac 25th Oct '11 4 of 6

Yep, very sweet dividend. Happy to wait it out and collect it. Will review results in more detail later.

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Fangorn 25th Oct '11 5 of 6

Agreed mark,

The sweet divi gives one some measure of comfort.Am glad they diversified their operations, something I tend to look for in the majority of companies I invest in - gives some margin of safety if one segment experiences a severe downturn. Will add on any further market wobbles...

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Fangorn 26th Oct '11 6 of 6

Comments bookie side.

"Arbuthnot Securities maintained its "neutral" recommendation for Braemar Shipping Services (BMS), but with a reduced target price of 320p, from 340p. The maritime services company is expected to issue an annual dividend of 26p, offering an attractive yield of 7.7%, but the broker notes concern over cyclical difficulties in the industry that are likely to impact the firm in the near term. As a result the broker forecasts a 31% year-on-year decline in pre-tax profits for the 2012 financial year. Braemar shares stayed flat at 339.5p."

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My name is John Kingham and I'm the editor of UKValueInvestor.com, a website and newsletter for defensive value investors. Defensive value investing combines defensive investing (buying large, successful companies with long track records of profitable dividend growth) and value investing (buying those companies at low valuations and with high yields). The site includes a unique stock screen and a model portfolio which is managed using a systematic investment process.  The goal is to produce a high income and growth portfolio with below average risk, which is easy to manage in just a few hours each month.   more »



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