Are the shares of Braemar (LON:BMS) a ‘sell’ before tomorrow morning’s Interim Results are announced?
After a recently lowered guidance, the six months to the end of August this year are expected to show almost stand-still revenues of £75m (£74.9m), while the half-time underlying operating profit is likely to be gently better at £7.6m.
The £78m capitalised group, which is a leading provider of expert investment, chartering and risk management advice to the shipping and energy markets, is hoping to see a better second half-year.
The Business
The group is the second-largest shipbroker in the world, providing broking services to the dry cargo, deep sea tanker, specialised tanker and sale and purchase markets.
As a leading global shipbroker with offices in London, Singapore, Beijing, Geneva, Perth, Dubai, Athens, Hamburg, Melbourne, Madrid, Shanghai, and Houston, it is well-positioned to serve key industry players across different time zones and cultures.
The group’s operations are diversified across Tankers, Dry Cargo, Sale & Purchase, Renewables, Financial and Offshore, to generate a reliable, less cyclical income stream.
Braemar’s various services enable its clients to secure sustainable returns and mitigate risk in the volatile world of shipping and energy.
It also addresses the fast-growing areas of offshore and renewables, securities and financial markets.
The company’s experienced brokers work in tandem with specialist professionals to form teams tailored to their customers' needs, and provide an integrated service supported by a collaborative culture.
Analyst’s Views
Last week’s Budget measures gave the company the ability to lower its market guidance due to the effect of the UK Employers National Insurance rate hike.
Analyst Damian Brewer at Canaccord Genuity Capital Markets still rates the group’s shares as a Buy, but he has lowered his Price Objective from 410p to 380p.
For the current year to end-February 2025, he is going for increased revenues at £154.7m (£152.8m), while adjusted pre-tax profits could fall to £15.4m (£16.1m), easing earnings to 31.5p (34.2p) and paying a steady dividend of 13p a share.
For next year, he sees £156.6m in revenues, lower profits at £15.2m, earnings of 31.3p and a maintained 13.0p dividend per share.
Brewer considers that Braemar shares offer:
1) scope for sector multiple expansion from a potential (non-linear) super-cycle emerging in shipping (rising demand, too few new ships);
2) multiple restoration and thus expansion as new management shows its capabilities; and
3) potential for significant upside from targeted expansionary investment – where the impact on Braemar can be significant.
Andy Murphy at Edison Investment Research has a dividend discount model-based valuation of 535p on the group’s shares.
Despite the additional NI costs Murphy reckons that Braemar’s underlying operations continue to expand and diversify, while the group is well-positioned to drive its future growth strategy.
He notes that the trading outlook is promising and that the business should be able to leverage its strong balance sheet in pursuit of strategic growth.
His revenue estimates for this year and next stand at £152.5m, with normalised pre-tax profits of £14.7m, then £14.6m respectively – but with earnings of 44.4p then 47.7p in the 2025 and 2026 years, as well as 14.0p then 16.0p per share in dividends.
In My View
I have been keenly following this group for some years and I have viewed its expansion with great interest.
However, I was rather switched off by the way that the Management presented itself on a recent video interview – especially boss James Gundy, who was fidgeting around during the episode portraying an almost lack of interest in the proceedings.
Apart from announcing major acquisitions or funding rounds, there are only five times in a year when a Management gets to talk to its investors – Trading Updates Pre-Interims and Finals, the Finals and the Interims and then the AGM Update.
So, it is disappointing when such a lack of attention becomes apparent; just what does it say to investors?
Despite boom times across the shipping sector Braemar does look as though it is just treading water.
For unlucky shareholders in the group, who endured the lengthy suspension of dealings while some mismanagement was being investigated, the hopes of a share price recovery have been smashed – with a recent return to those suspension lows of 2023 of 233p.
But with all of the above taken into account, it may surprise readers to know that I still consider the shares of Braemar, now at 248p, as inexpensively rated at just 7.9 times current year earnings.
Furthermore, I still have a gut feeling that one or two of the other, but private, shipbroking groups would like to tuck Braemar into their own corporate framework’s - like the Danish shipbroker resident in Dubai, boss of Lightship Chartering, Morten Have- he is said to have paid higher than the current price for his 1m shares, possibly up to 290p each.
While the Dohle Group, controllers of the world’s largest tramp-owned fleet of containerships, some 415 vessels, with some $8bn assets under its management, earlier this year acquired just under 1m shares in Braemar.
Braemar would splice together very well with either of these two latter holders.
In its current state, Braemar could make a magnificent takeover target for other players within the shipping sector.
2025 could well be Braemar’s year!
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