Braemar – doubled profit results due shortly
Did you know that there are only two publicly traded shipbroking companies quoted on the UK market and Braemar (LON:BMS) is my favourite.
Absolutely I make no apologies about returning to highlight the investment advantages of this undervalued group.
With some 16 offices across the globe the company operates on a 24/7 basis, covering all the shipping hubs in offering its customers opportunities in both established and emerging markets.
As a leading global shipbroker with offices in London, Singapore, Beijing, Geneva, Perth, Dubai, Athens, Mumbai, Aberdeen, Hamburg, Melbourne, Madrid, Palm Beach, Sao Paulo, Shanghai and Houston, the group is well-positioned to serve key industry players across different time zones and cultures.
It delivers expert advice in Chartering, Corporate Finance, Research and Analytics, Operations and Risk Management.
Its operations are diversified across Tankers, Dry Cargo, Sale & Purchase, Renewables, Financial and Offshore in order to generate a reliable, less cyclical income stream.
The £96m capitalised group claims that to achieve success in the volatile world of shipping, you need the highest level of expertise and years of practical experience.
And Braemar, with some 400 plus employees globally, offers just that to its clients.
The company’s operations are diversified across tankers, dry cargo, sale and purchase, renewables, financial and offshore.
It operates through three segments: Investment advisory, Chartering, and Risk advisory.
The Investment advisory segment provides investment consultancy, new build advisory, sales and purchase brokerage, asset valuation, recycling/end of life, and capital raising and corporate finance.
Its Chartering segment includes cost-saving solutions, creating and protecting deals, cross-desk collaboration, first-mover initiatives, and freight consultancy.
The Risk advisory segment includes derivatives brokerage, asset utilisation, loan restructuring, loan portfolio management, and carbon offsetting brokerage.
Sales per Business and Region
On a sales per business basis Shipbroking accounted for £94.66m of the group’s 2022 turnover, some 93.4% of the group total, while Financial was £6.65m for the balance 6.6%.
On a sales per region basis the UK accounted for £54.52m (53.8%), Singapore £19.42m (19.2%), Australia £12.57m (12.4%), Germany £2.49m (2.5%), the US £0.97m (1.00%) with the Rest of the World handling £11.34m (11.2%).
Recent Trading Update
On 22nd March the group issued a Trading Update for the 2023 year’s results.
It announced that the business had achieved record revenue and record profitability for the year ended 28 February 2023 on a simplified business strategy.
The company stated that it expected to report revenue for the year of not less than £150m (2022: £101.3m), with underlying operating profit of not less than £20m (2022: £10.1m).
Cash generation had also been strong, expected to be in a net cash positive position of circa £6.9m at the end of the financial year (2022: net debt of £9.3m).
Trading in the first few weeks of the financial year started well and the board looks forward to the rest of the year with confidence.
There are 32,924,877 shares in issue.
The Braemar Shipping Services ESOP is the largest holder with 12.03% of the equity.
Other large holders include Hargreaves Lansdown Asset Management (7.78%), Chelverton Asset Management (5.85%), Horizon Kinetics Asset Management (4.85%), Barclays Bank (Private Banking) (4.00%), Unicorn Asset Management (3.60%), and National Financial Services (2.72%).
There are three private holders of size – Quentin Soanes (3.91%), Magnus Halvorsen (3.39%) and CEO James Gundy (2.36%).
Broker’s View – 520p valuation
Analyst Ian McInally at Cenkos Securities estimates that the year to end February 2023 will have seen sales increase to £150.5m (£101.3m), more than doubling adjusted pre-tax profits to £19.5m (£8.9m), lifting earnings up to 50.1p (45.6p) per share and easily covering a 12.0p (9.0p) dividend.
For the current year he is going for similar revenues at £150.5m, a slight lowering in profits to £17.3m, dropping earnings down to 42.4p but increasing the dividend to 13.0p per share.
The year to end February 2025 he has pencilled in an increase to £155.0m turnover, £18.5m profits, earnings of 45.3p and a very much healthier dividend of 14.9p per share.
The group which has a strong balance sheet, he suggests, will end up with £6.9m net cash for the end February 2023 year, then £13.3m this year and £18.2m next year.
Based upon his estimates McInally computes that the groups’ net assets will show through at £86.8m for the 2023 period, then £95.8m this year and £105.3m for next year.
At Edison Investment Research Andy Murphy has fairly similar estimates to Cenkos Securities.
He has a dividend discount model-based valuation for the group’s shares of 520p.
My View – on 5.8 times price-to-earnings
The other quoted shipbroker is Clarkson (LON:CKN) which is valued ten times higher than Braemar, with its shares trading on 13 times current year earnings.
That compares to Braemar’s capitalisation of just £96m with its shares currently standing at 292.5p, which puts them out on a mere 5.8 times estimated historic earnings and yielding over 4.1%.
The shares, which were up to 350p in September last year, have tremendous investment appeal at the current levels.
I believe that the imminent announcement, of the group’s final results for 2023, will give a very positive showing of that year’s trading and a strong report on current prospects.
These shares are cheap and should be in any investors portfolio whether looking for growth or income.
(Profile 05.12.19 @ 185p set a Target Price of 250p*)
(Profile 20.05.20 @ 99p set a Target Price of 150p*)
(Asterisks * denote that Target Prices have been achieved since Profile publication)