Ambition to double size in four years

Braemar Shipping Services 23 May 2022 Initiation
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Braemar Shipping Services

Ambition to double size in four years

Initiation of coverage

Industrial support services

23 May 2022

Price

280p

Market cap

£89m

Estimated net debt (£m) at 28 February 2022 excluding leases.

5.6

Shares in issue

32.2m

Free float

100%

Code

BMS

Primary exchange

London Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.8

8.3

23.6

Rel (local)

7.7

11.2

21.2

52-week high/low

310p

201p

Business description

Braemar Shipping Services 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. It also addresses the fast-growing areas of offshore and renewables, securities and financial markets.

Next events

Preliminary results

June 2022

Analyst

Andy Murphy

+44 (0)20 3077 5700

Braemar Shipping Services is a research client of Edison Investment Research Limited

Braemar recently completed a corporate transformation that will see it move away from being a widely spread shipping services company, to grow into a clearly focused shipbroking operation. Allied to the transformation is the company’s growth strategy, supported by growing global trade, and shipping’s status as the most energy-efficient and lowest carbon method of freight transport, that has management focused on doubling the business inside four years. We value the shares at 400p, a c 40% premium to the current price, but see greater upside as evidence of success is delivered over the next two to three years.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02//20

117.7

9.4

30.2

5.0

9.3

1.8

02/21

111.8

8.1

20.0

5.0

14.0

1.8

02/22e

101.1

8.7

20.8

7.0

13.5

2.5

02/23e

105.2

11.5

27.9

9.0

10.1

3.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Transformation completed by end February 2022

The new management team, which saw the final appointment of a NED in March 2022, has been instrumental in transforming Braemar from a company offering a broad range of largely unconnected shipping services into one focused on cash-generative shipbroking and related corporate finance activities. The last piece of the transition was the disposal of the low-margin logistics division in February for £10.25–15.5m, including £6.5m upfront and depending on three earnout payments.

Growth strategy to double the company’s size

In 2021, management announced a new strategy that, if successful, would see Braemar double in size inside four years. The expansion is expected to be achieved by both organic growth and acquisition. Although this sounds quite ambitious, it should be noted that the broking market is very fragmented and there are margin synergies to be achieved through scale. Also the core broking division doubled in size between 2014 and 2019, thus highlighting that the aim is achievable. Although Braemar is a global operation, there are locations and business lines where operations could be ‘bulked out’ by adding desks of brokers. The expansion is likely to be internally funded given the low level of gearing, although some expansion may be financed by equity, which implies greater liquidity.

Valuation: DDM model suggests 400p/share

Braemar is trading on a P/E of 10.1x in FY23e, a material discount to the only other quoted shipbroker, Clarkson, which trades on c 18x in FY22e. We believe such a large differential is unjustified as it gives no credit for the growth ambition and proven ability to execute, suggesting upside in Braemar’s rating. We value Braemar at 400p/share based on a dividend discount model (DDM) with a 7.25% cost of capital and a growth rate of 5.5%. This valuation implies a P/E of c 17x, a c 5% discount to Clarkson, and a terminal growth rate of c -5% in our DCF model. Furthermore, we believe there is upside to earnings forecasts and the potential for a re-rating of the shares, which would suggest a higher valuation than 400p is possible if management can successfully deliver the growth strategy.

Investment summary

Braemar Shipping Services: A fast-growing shipbroker

Braemar is the second largest quoted shipbroker in the world, providing broking services to the dry cargo, deep sea tanker, specialised tanker, gas carrier and sale and purchase (S&P) markets. It also addresses the fast-growing areas of offshore and renewables, securities and financial markets, the latter through its corporate finance division Braemar Naves, which has strong synergies with the other divisions. Its key clients include shipowners, trading companies and lenders.

Braemar is currently reaching the end of a long period of reorganisation and is embarking on the next stage of its transformation into a streamlined global shipbroker. Allied to the transformation is the new strategy introduced last year, which is expected to see the company double in size over the next three to four years, to reap the benefits of scale and diversification. It is also developing an offering that addresses the increasing need for all global shipping to offset unavoidable carbon emissions through the purchase of carbon credits from a portfolio of carefully chosen nature-based projects. The International Maritime Organisation (IMO) estimates that shipping accounts for c 2.5% of global CO2 emissions.

DDM and multiples-based valuations point to c 400p/share

Demand for ships and shipping has shown a long-term growth trend as sea-borne trade has steadily increased along with the global population and the relentless demand for global supply chains. Periodically, there have been, and will continue to be, fluctuations in demand volumes and/or charter rates and, although these can be very wide, they tend to be short-lived. Given that Braemar is adding to its broking exposure by both trade and geography, the financial impact of fluctuating markets should be minimised, thus improving the quality of its revenues.

We believe that the current share price and implied modest valuation multiples largely reflect Braemar’s indifferent financial history and modest market capitalisation, and do not fairly reflect the growth potential that exists within the group under the new management team. Our DDM suggests a value of 400p/share, assuming modest dividend growth of 5.5% per year. Our multiples-based model suggests a value of 391p, assuming a P/E of 17x in FY23e. Our DCF suggests that the average of these valuations implies a terminal value growth rate of c -5% pa. We would argue that all these valuations are modest in magnitude and higher values are likely if management can demonstrate successful execution of its growth strategy.

On current estimates, Braemar is trading on a P/E of 10.1x in FY23e (year ending 28 February), which compares very favourably with market leader Clarkson, which is trading on c 18x in FY22e (year ending 31 December). Given the ambition and proven ability to execute of Braemar’s management team, such a wide differential appears unjustified, a situation that could be addressed as Braemar delivers on its strategy.

Revenue growth set to continue and M&A potential

We believe that at first glance, Braemar’s revenue history (Exhibit 1 below) hides much of the positive work that the new management team has achieved as it disposed of several low-margin and unrelated activities to refocus on pure shipbroking and related financial activities (Exhibit 2 below). After highlighting the group's history of underlying revenue growth, we can see that not only is the growth strategy achievable, but that it has been achieved before, between 2014 and 2019, a period that included the merger with ACM Shipping.

Furthermore, the balance sheet is unconstrained. At the interim stage of the current financial year to end February, Braemar reduced its net debt (including finance leases) to EBITDA ratio to 1.23x, thus achieving its stated aim of reducing the ratio to below 1.5x EBITDA. In its trading update on 3 February, Braemar also commented that trading in the second half to date had been ‘strong’ and that revenues for the year would not be ‘less than £101m’, driven by a volatile dry cargo market and significantly higher transactions on the S&P desk due to a strong dry cargo market and synergies gained from closer collaboration with the financials division on containers.

Exhibit 1: Headline revenue (£m) 2013–24e

Exhibit 2: Underlying revenue (£m) 2013–24e*

Source: Braemar, Edison Investment Research

Source: Braemar, Edison Investment Research. Note: *Shipbroking and finance divisions only.

Exhibit 1: Headline revenue (£m) 2013–24e

Source: Braemar, Edison Investment Research

Exhibit 2: Underlying revenue (£m) 2013–24e*

Source: Braemar, Edison Investment Research. Note: *Shipbroking and finance divisions only.

We also believe that Braemar is likely to engage in some M&A activity to achieve its stated strategy of doubling the size of the business. This would appear to be more achievable now that debt has been reduced. M&A may also be funded through equity, which should have the effect of increasing the liquidity of the stock, which may encourage a wider shareholder base.

Sensitivities exist, but the spread of exposure mitigates risk

Braemar is exposed to numerous external influences that can have an impact on revenue, either via volume of trade, which is largely macro related, or via shipping rates, which can be influenced by supply issues such as the blockage in the Suez Canal in March 2021 when the 20,000TEU (20 foot equivalent unit) container ship the Ever Given ran aground and completely blocked the canal for more than six days. On average, around 50 ships pass through the canal daily, so one isolated incident can have a material effect on charter rates.

Other issues that can affect time charter rates include the risks associated with war or terrorism, which might have the effect of reducing market capacity by forcing vessels to travel on longer voyages, or more recently the effect of COVID-19, which meant there were transport shortages at ports, forcing vessel owners to ‘slow-steam’ to save fuel costs, and reduce congestion and waiting time at ports. This kind of disruption can be a positive for Braemar as, in effect, it reduces the number of vessels on the water and, with vessel supply being scarcer, rates tend to go up, which is beneficial for Braemar.

There is a potential impact from the Ukraine/Russia war and sanctions that have been imposed on the latter. In March, dry bulk exports from Russia were down 12.2% y-o-y, with coal, grain and steel down 11.9%, 2.3% and 26.2% respectively. Since then, sanctions have been tightened so it seems likely that exports, particularly of coal, will drop further. This implies that supplies from other parts of the world on longer voyages are likely to support dry bulk charter rates for the foreseeable future.

The Baltic Dry Index (Exhibit 3) gives an indication of rate volatility, but it is clear from the revenue charts above that such volatility is not usually reflected in the group’s underling revenue as the rate is effectively ‘spot’, but the time charter may last two to three years, thus spreading Braemar’s income and lowering risk and volatility.

Exhibit 3: Baltic Dry Index – last 10 years

Source: Refinitiv

Company description: A fast-growing shipbroker

Braemar is an ambitious global shipbroker that is looking to double the size of its business in the next four years, either through organic growth, acquisition or both. We believe it has the management, strategy and balance sheet in place to allow it to achieve this demanding but achievable target. It has already made several disposals and rescheduled the Naves acquisition liability, which has freed up capital, as well as simplifying the group’s structure, which should help set the tone for a period of global expansion. A timeline of events in the company’s 2021 Annual Report and Accounts provides more detail.

Braemar Shipping Services: Second-largest quoted shipbroker

Braemar is the UK’s second-largest quoted shipbroker behind market leader Clarkson. As a full-service shipbroker, Braemar offers a comprehensive range of services to ship owners and operators from a global network of offices in the shipping centres of London, Aberdeen, Geneva, Athens, Houston, Melbourne, Perth, Sao Paulo, Singapore, Shanghai, Mumbai, Dubai and Beijing. 69% of its revenue originates in London, with another 13% attributed to Singapore.

These services address almost all aspects of the shipping markets including tanker trade (specialised and deep sea), dry cargo, S&P, gas, petrochemicals, offshore and renewables. It also offers a research function that provides market intelligence across the whole shipping spectrum, freight derivatives brokering, and has a financial division that acts as a corporate financial advisor to the maritime sector. Following the disposals, it will report divisionally as described below.

Exhibit 4: Braemar – strength by region and market

Source: Braemar

Exhibit 4 above illustrates how management sees the relative strengths of the group by region and market, which is relevant when considering the current expansion strategy. This is outlined in the next section on Braemar’s strategy.

Business model

A traditional shipbroker provides a financial service that matches vessel owners with investors and charterers, as well as managing exposure to market risk, in return for a fee that is usually a percentage of the overall cost of freight, vessel hire or the value of the asset itself. It is a specialist market where personal and corporate relationships form a key part of the business model. Individual brokers who generate fee income are paid salaries, but they also earn sizable bonuses based on the overall profitability of the business and the income they generate. In FY20, which includes revenue and costs relating to the logistics division (Cory Brothers, since sold), staff costs, ie salaries and bonuses etc, accounted for c 80% of the group’s total operating costs, highlighting the importance of employing the right brokers for the right trades.

Shipbroking revenue model explained

A shipbroker is very similar to any other kind of broker, although ships and freight markets do not behave like stocks and shares, or even commodity markets. It provides a service for which it gets paid, much the same as a stockbroker or insurance broker. The more transactions it executes and/or the higher the price of the transactions, the more revenue it generates. There are several strings to a shipbroker’s bow: integrated brokers like Braemar are active in chartering, S&P, forward freight agreements (FFAs) and structured deals, which involve its corporate finance activities. In Braemar’s case it also generates income from providing market research. Each of these activities is briefly explained below:

Chartering (63% of FY21 revenue): there are two main types of chartering: single voyage or ‘spot’ chartering and term (time charter). In both cases, the shipbroker earns a fee of c 1% of the total contract price agreed between the shipowner/operator that has control of the vessel and the charterer who has the cargo to be transported. On a ‘spot’ charter, the fee is measured in gross freight ($/tonne) and in term chartering, the fee is based on a $/day charter rate for the entire vessel. The higher the cost or the longer the charter, the more the shipbroker earns. On a ‘spot’ charter, the broker is paid once the cargo is discharged, while it is paid periodically over the life of a ‘time’ charter.

S&P (20% of FY21 revenue): sale and purchase of newbuild and second-hand vessels and fleets. The shipbroker earns a fee typically paid by the shipowner or the shipyard, for matching buyers and sellers of new or second-hand ships. The cost of the vessel and the implied broking fee will depend on the prevailing market for a specific vessel type. Newbuild prices are also influenced by shipyard costs and the tightness of shipbuilding capacity. S&P income also includes vessels that are sold for scrap to demolition yards. The price and implied fee depend on the total value of the steel and spare parts ($/light displacement (ldt)) that can be recovered. Invoices are issued once the transaction is complete.

FFAs (c 9% of FY21 revenue): an FFA is a forward financial contract that allows companies exposed to freight markets to manage their risks or profit from market volatility. An FFA gives the contract owner the right to buy and sell the price of freight for future dates and therefore reduce risk in the physical market. It is settled for cash through a clearing house. The broker earns commission in cents/tonne from the commodity being moved. The volume of FFAs traded rises as freight markets become more volatile.

Structured deals/corporate finance (7% of FY21 revenue): structured deals are usually of a corporate finance type that could include work relating to a takeover, or the purchase or disposal of a fleet or vessel. In this case, there will be overlap with the S&P brokerage services. Fees are based on a percentage of the transaction value.

Braemar also earns a modest income from subscriptions and project work that relates to the provision of market research and intelligence under the brand BraemarMarkets. Research income is spread across the desk to which it relates.

Strategy: Double the size of the business in three to four years

Braemar was the result of a number of acquisitions over a long period of time that left the company broadly spread across numerous maritime-related activities. The current board has decided to focus on its traditional core shipbroking business, with the added provision of expert advice in shipping investment, chartering and risk management.

This focus led the company to dispose of several businesses including:

1.

Braemar Response for £0.8m, part of the technical division, in October 2018.

2.

Offshore, marine and adjusting business, another part of the technical division, in May 2019 to Aqualis in return for shares in the combined AqualisBraemar entity.

3.

Wavespec for £2.6m, essentially the engineering division, to Wavespec Holding in May 2021, although the proceeds were never received and have since been written off.

4.

AqualisBraemar LOC share sale for £13.9m in three tranches agreed in January 2021.

5.

Cory Brothers: the logistics division, which was expected to be merged into a joint venture with Vertom Agencies, was sold outright in March 2022 for £10.25–15.5m, a combination of an upfront cash payment and a three-year earnout. In FY21, Cory Brothers reported revenue of £28.1m and PBT of £1.2m, with net assets of £4.1m (at 31 August 2021), although this figure is believed to be the lower of carrying value and fair value.

The board is now focused on doubling the size of the remaining business over the next three to four years through a combination of organic growth and M&A activity. Braemar fully recognises that its customers are increasingly global and it needs to be able to offer a fully global service. Looking at Exhibit 4, it is clear that a majority of the focus will be on expanding the business in a range of markets where it sees opportunities, especially in the Middle East and the Americas.

In November 2020, to best achieve the required outcome, Braemar invested relatively modest amounts of capital in Zuma Labs, a technology platform that allows information sharing across certain broking desks and clients. Further investment in access to data and market information is likely.

Renewed management team

The current board is relatively new and, in our opinion, it therefore follows that strategic decisions are likely to benefit from a fresh perspective. The strategy to double the size of the business (described above) was put in place by the current board in 2021.

One of the recent senior appointments to the board was chairman Nigel Payne in May 2021. He has a wealth of board experience, both as a chairman and a chief executive. He is currently non-executive chairman of Gately and a non-executive director (NED) of GetBusy. He was CEO of Sportingbet from 2000 to 2006.

James Gundy was appointed chief executive on 1 January 2021, having previously been the CEO of Braemar’s shipbroking division. James joined Braemar when it merged with ACM Shipping Group in 2014, where he became MD of Shipbroking until 2020 and was responsible for driving growth post the ACM merger. He has been a shipbroker for 35 years, specialising in tankers and S&P projects.

Nick Stone (CFO) was appointed to the group in April 2019, having previously held the same position at The Appointment Group. He was also a director of Hornby and KBC Advanced Technologies.

Tris Simmonds joined Braemar’s board in August 2021 as group chief operating officer (COO). He joined Braemar when his own business, Atlantic Brokers, was bought by the former in 2018. Before setting up Atlantic, Tris worked for GFI Group for 14 years, latterly as head of European commodities. In total, he has spent c 30 years in the commodities industry.

Elizabeth Gooch, MBE was appointed to the board a non-executive director from 1 August. She has experience of governance, compliance and financial reporting of publicly listed companies, having founded and run AIM-listed software company EG Solutions from 2005 until 2017.

Joanne Lake was appointed as a non-executive director in March 2022. She holds a number of NED roles including Mattioli Woods, Made Tech and Gately.

Markets: Outlook for growth

The global deep sea shipping fleet has been steadily expanding. A key driver has been growing international trade, which we believe is likely to continue and should have a direct benefit on the shipbroking industry. While some charter rates are currently very high, for example container ship charter rates, others like the Baltic Dry Index are broadly within a historical average range and other indicators such as fleet age and low new vessel order books for certain key trades point to greater future demand, thus balancing risks and growth. Furthermore, growing demand for sustainability is adding new opportunities and income streams for shipbrokers (see New ‘green’ growth drivers section below). We believe Braemar is well placed to tap into these developing markets.

Drivers of growth in shipbroking

A traditional shipbroker provides a financial service that matches vessel owners with vessel operators (charterers) and trading companies in return for a fee that is usually a percentage of the overall time charter cost (see page 5). Therefore, a shipbroker’s income on a specific trade (ie dry cargo, tankers etc) can be very volatile. However, despite charter rate volatility, the overall volume of trades has steadily increased over time as the volume of shipping capacity has increased (see Exhibit 5 below).

Exhibit 5 shows that global deep sea fleet capacity has more than tripled in the last 20 years despite macro and geopolitical upheaval. This underlying growth could also be a driver of increased income because shipbrokers can become heavily involved in the newbuild market, where they will liaise between a potential ship owner and the shipyards that will be commissioned to construct the vessel. Again, fees will be generated both on newbuilds and where existing vessels or fleets change hands.

Exhibit 5: World deep sea shipping fleet (dwt)

Source: BraemarMarkets. Note: LNG – liquified natural gas, LPG - liquified petroleum gas/

Generally speaking, shipbroking depends on building good relationships with most shipowners, charterers and shipyards specialising in a particular trade and on a limited number of shipbroking locations such as London, New York, Singapore and Tokyo. Other key locations are Oslo, Athens, Copenhagen and Geneva in Europe, Connecticut, Houston and Montreal in North America and Hong Kong, Shanghai, Delhi and Mumbai in East Asia and South-East Asia.

However, a few like Braemar and Clarkson have become integrated shipbrokers that cover most of the key trades, and offer financial (corporate finance) and research services as part of the overall package of activities.

Outlook for key freight rates is positive

There are a number of trends in shipping which suggest that income for shipbrokers is likely to be buoyant for the foreseeable future, with the war in Ukraine adding to the tightness of rates due to the potential impact on trade flows. Trends include global economic growth, an ageing fleet, cost inflation, lack of spare shipbuilding capacity because yards are full of container new builds and high steel prices, encouraging owners of older vessels to sell tonnage for scrap.

Exhibit 6: Braemar Container Index

Source: BraemarMarkets

Dry bulk: Duration of elevated rates may depend on Ukraine/Russia war

Dry bulk time charter rates were at relatively elevated levels in autumn 2021, before dropping back as a reaction to the International Monetary Fund’s (IMF) downgrading of 2022 global growth expectations, from 4.9% to 4.4%, in January. The IMF cited the latest COVID-19 variant travel restriction as one driver of the reduction. In addition, it suggested higher energy prices and continued supply chain disruptions, as well as a slower recovery in private consumption that would cap growth prospects. The outlook for the Chinese economy is important for the dry bulk market as it accounts for 44% (BraemarMarkets – The big picture: Global economic outlook) of all bulk carrier demand in deadweight ton days (dwt days).

That said, in recent weeks as the conflict in the Ukraine has intensified, the one-year Time Charter Index has risen c 50% as uncertainty surrounding trades flows and security of shipping has increased.

It remains to be seen where rates settle in future months but, with 790 vessels on order for the industry globally, of which 269 vessels or c 2.4% of the current fleet (11,440 vessels) are set for delivery this year (source: Braemar), rates could remain at current elevated levels for a while. There are relatively few dry bulk vessels that are older than 20 years and therefore time charter rate support from higher levels of scrappage look modest at best.

Exhibit 7: Time charter rate – dry one-year Capesize (US$/day)

Exhibit 8: Time charter rate – dry one-year index

Source: BraemarMarkets

Source: BraemarMarkets

Exhibit 7: Time charter rate – dry one-year Capesize (US$/day)

Source: BraemarMarkets

Exhibit 8: Time charter rate – dry one-year index

Source: BraemarMarkets

Deep sea: Consensus suggests little rate recovery

As can be seen from Exhibits 9 and 10 below, very large crude carrier (VLCC) five-year time charter rates in 2022 are at the low end of the historical range, suggesting little optimism for improved prices in the market. This is because post COVID-19 economic recovery is likely to be met with increased vessel delivery. However, according to research from BraemarMarkets, there is scope for a more optimistic view, which may be augmented by the impact of sanctions relating to the Russia/Ukraine conflict in our opinion.

This more optimistic view stems from a combination of factors, including:

40 VLCCs are due for delivery in the remainder of 2022, but some deliveries are likely to slip into 2023.

35 vessels will become 20 years old this year and are therefore due to be scrapped. There is little demand for more vessels to ply the ‘dark’ trades of crude exports from Venezuela or Iran, so there is less chance that these older, less efficient vessels are attractive to any owner.

Many of the 30 or so fleets that are more than 20 years old may be scrapped as demand for them would evaporate if the US lifted Iranian oil sanctions.

Individual vessel earnings are very low for older ships as bunker prices are high and going higher.

Scrap prices have doubled to c $600/tonne, which increases the attractiveness of scrapping older tonnage and could reduce the size of the anticipated fleet, implying a positive supply/demand environment.

Exhibit 9: Time charter rates VLCC (non-eco) five-year (US$000s/day), 2002–18

Exhibit 10: Time charter rates VLCC (eco) five-year (US$000s/day), 2018–2022

Source: BraemarMarkets. Note: ‘Non-eco’ are older, less fuel-efficient vessels.

Source: BraemarMarkets

Exhibit 9: Time charter rates VLCC (non-eco) five-year (US$000s/day), 2002–18

Source: BraemarMarkets. Note: ‘Non-eco’ are older, less fuel-efficient vessels.

Exhibit 10: Time charter rates VLCC (eco) five-year (US$000s/day), 2018–2022

Source: BraemarMarkets

Specialised tankers: Limited supply of vessels to hit the market

Braemar’s third-largest chartering revenue income stream is specialised tanker revenue, behind deep sea tankers and dry cargo. It is made up of revenue from a number of differing trades split broadly evenly between oil products, chemicals, liquefied petroleum gas (LPG) and liquefied natural gas (LNG).

The outlook for charter rates appears to be encouraging as global trade is growing and most of the tanker shipyards are nearing full utilisation for the next three years, mainly taken up with container ship orders and some LNG volumes. It therefore appears unlikely that most specialised charter rates will be hit by an oversupply of tonnage. According to BraemarMarkets’ report The Big Picture: Tanker supply dated 4 February 2022, 2023 delivery slots were filled in Q121. Around 25m gross tonnes of capacity contracted in 2021 is now expected to be delivered in 2024.

Exhibit 11: LPG one-year time charter index

Exhibit 12: LNG time charter rates – 145k CBM (steam) one year

Source: BraemarMarkets

Source: BraemarMarkets. Note: CBM: cubic metres.

Exhibit 11: LPG one-year time charter index

Source: BraemarMarkets

Exhibit 12: LNG time charter rates – 145k CBM (steam) one year

Source: BraemarMarkets. Note: CBM: cubic metres.

Ageing fleets point towards increasing newbuild activity

S&P activity is very important to Braemar as it accounts for c 20% of group revenue, with the majority of income generated from second-hand trading activity and scrap sales that have different drivers from the newbuild market.

Generally speaking, in the newbuild market, there are three reasons why potential ship owners commission new capacity. Firstly, the market is expected to grow and owners want increased exposure to it. Secondly, vessels may be heading towards the end of their economic lives, which is generally considered to be c 20 years. Thirdly, there may be environmental or legislative changes that will render existing capacity uneconomic, or even illegal, for example single hull tankers that were phased out between 1995 and 2015.

The charts below illustrate the current situation clearly. Global order books for newbuild dry bulk carriers and tankers are at, or close to, historically low levels and the total amount of capacity that is heading towards, or is already older than the typical 20-year life expectancy, is increasing sharply. This suggests that the order book should be close to an inflection point.

Exhibit 13: Order book as percentage of existing fleet (dwt)

Exhibit 14: Tanker capacity nearing the end of its economic life (m dwt)

Source: BraemarMarkets

Source: BraemarMarkets

Exhibit 13: Order book as percentage of existing fleet (dwt)

Source: BraemarMarkets

Exhibit 14: Tanker capacity nearing the end of its economic life (m dwt)

Source: BraemarMarkets

New ‘green’ growth drivers

The shipping industry is becoming increasingly complex from a regulatory point of view and navigating the compliance landscape requires expert counsel, which Braemar is able to provide.

It is well known that the global shipping industry is responsible for c 2.5% of global carbon emissions and has put in place commitments to reduce emissions by 50% from 2008 levels by 2050 (see timeline below). The industry is addressing this in a number of ways, including the introduction of Flettner rotors (spinning ‘sails’), hull coatings and bulbous bows, to switching from marine fuel oil to natural gas and even battery technology as ways of reducing greenhouse gas (GHG) emissions.

However, there is mounting pressure on the industry, for example from the COP26 climate summit, the EU, the Paris Agreement and the Poseidon Principles, to adopt zero emission targets by that date. This will be very hard to achieve because there are 175 member countries within the organisation, all with different agendas and financial situations.

Another issue that is delaying decisions is the nature of the technology that needs to be in place to achieve the target. Shipping assets are long term by nature and very costly, so understandably nobody wants to ‘back the wrong horse’. An industry-led proposal has been submitted to the IMO to create a $5bn research fund to find the right technology, but no decision has yet been made.

Exhibit 15: Timeline of regulations and actions for reducing GHG emissions in shipping

The IMO estimates that the cost of achieving net-zero emissions by 2050 is $2.4tn, with c $500bn required by 2030. However, if even a fraction of it is undertaken we believe that shipbrokers with S&P desks like Braemar will have a material role to play in matching capital, ship owners, operators and shipyards.

Sensitivities: Market rates and world events

Braemar is particularly sensitive to the level of global trade and the shipping charter rates that prevail at any given time. There are a number of factors that can have an impact on the former that fall outside Braemar’s control, such as a recession. Equally, a different set of factors can contribute to charter rates and, again, falls outside Braemar’s sphere of influence, as described in the Markets: Outlook for growth section above. However, there are often offsetting factors. For example, strong charter rates for a particular trade, such as containers currently, lead to a surge in S&P activity that Braemar may be able to leverage. If that surge in orders leaves the market oversupplied in future years, charter rates would probably fall and the income for a broker would be lower than hoped. This volatility can be seen in the Baltic Dry Index.

Currently the events unfolding in Ukraine could have a knock-on effect on the company as ‘normal’ international trade is disrupted. Trade flows of oil and gas from Russia, for example, are likely to be hit by sanctions, which could mean that oil is supplied to international markets from other sources. This potentially means longer trade routes and vessels out of position, which would have the effect of pushing up time charter rates, especially in the short to medium term.

Other factors can contribute to time charter volatility. For example, when the 20,000TEU vessel Ever Given blocked the Suez Canal in 2021, it effectively took capacity out of the market and pushed up container charter rates. Other geopolitical situations could have a similar effect of reducing capacity by forcing vessels to take alternative and longer routes. Even COVID-19 has had an impact as ports became blocked with vessels queueing to be unloaded.

As an international company, Braemar could be affected by exchange rate fluctuations. Most, if not all, international trade is denominated in US dollars, so when the dollar is weak versus sterling, its reporting currency, sterling income will be negatively affected. Currently the opposite is true, with the US dollar strengthening versus sterling from $1.42 in May 2021 to c $1.25 currently.

For Braemar specifically, the share price has potentially been held back because broker bonuses have been largely paid in Braemar stock. This has led to a dominance of small private investors on the register and, arguably, to an unwillingness by institutional shareholders to buy stock. Liquidity has therefore been less than the 100% free float might suggest. Braemar is addressing this issue by reducing the share element of bonuses. If institutional buyers subsequently began to appear on the register, the share price might be re-rated upwards.

Financials and forecasts

Braemar has a February year end and its latest published results cover the six months to August 2021. These results revealed that revenue, excluding logistics, grew by 10.8% to £47.4m. Both the remaining divisions, shipbroking and financial, reported strong growth, with the latter performing particularly well having earned revenue from some large transactions. Underlying operating profit increased by 10.1% to £5.6m, excluding Cory Brothers. Profits from shipbroking were broadly flat due to mix, implying that all reported growth was accounted for by the financial division.

In February 2022, Braemar released its full year trading update, which revealed that it expected ‘continuing’ revenue to grow c 20%, from £84m to c £101m, and operating profit to grow from £7.7m (excluding Cory, £8.9m including Cory) to c £9.8m, implying margin expansion from 9.2% to 9.7%. These strong figures reflect favourable conditions across numerous markets and investments made by the company in increasing the breadth, focus and depth of its broking activities. Net bank debt fell from £8.9m at the end of February 2021 to £2.8m at 3 March 2022 after receiving the Cory disposal proceeds.

Looking into FY23 and beyond, we currently forecast modest annual revenue growth of c 3-4% per year, which we consider to be conservative given that much of the potential growth is likely to come via the acquisition of teams of brokers or entire businesses, both of which are impossible to forecast but provide scope for uplifts to earnings estimates. Following the most recent trading update on 20 May, we forecast c 20% growth in normalised operating profit, with some margin expansion reflecting the growth strategy and supportive markets. A key feature of the forecasts is a reduction in net bank debt, which we estimate will fall to £5.6m at end February 2022 and move to net cash of £1.5m by end February FY23. Our estimated net debt including leases is £14.2m and £7.1m respectively.

The company expects to pay a total dividend of 7p per share for FY22, which would be c 2.4x covered by earnings. Braemar’s current stated policy is to pay a progressive dividend in the future which leads us to assume that dividends will grow in line with our forecasts. Meanwhile, with our estimated end-FY22 net debt, including leases, of £14.2m (implied net debt/EBITDA of 1.06x with Braemar targeting a reduction in net debt/EBITDA to less than 1.5x), the group has, in our view, sufficient flexibility to pursue acquisitions while growing the dividend.

Financials: Well-placed to execute expansion strategy

We believe that Braemar’s revenue history hides much of the positive work that the relatively new management team has achieved, as it disposed of several low-margin and unrelated activities, and refocused the company on pure shipbroking and related financial activities. Once the group’s underlying revenue growth history is highlighted, we can see that not only is the growth strategy achievable, but that it has been achieved before, between 2014 and 2019. Furthermore, the business remains cash generative with low levels of bank debt. We believe it is now just a matter of time before the current management makes its next move to expand the business.

Revenue growth trend hidden by disposals

Looking at Braemar’s headline historical revenue performance (Exhibit 16) gives a distorted view of its history and a disguised picture of its future expectations. Exhibit 17 gives a much clearer picture of the historical performance of the remaining core businesses in the group and is a clear marker of future growth expectations.

The principal difference between the two charts is the exclusion of several business that have now been sold:

Environmental (Braemar Howells): absorbed into Technical Services in 2014.

Technical Services: sold to AqualisBraemar in May 2018 in return for shares in Aqualis.

Braemar Response (part of the technical division): October 2018 for £0.8m.

Engineering (Wavespec): 1 April 2021 for £2.6m (promissory note), now written off.

Logistics: sold in February 2022 for £10.2–15.5m (earnout dependent).

The growth in the core business has been achieved by building out the breadth of services in the core shipbroking operations, both by type of line and geographically, and by the acquisition of NAVES Corporate Finance in 2017 for up to €29m post the earnout measurement.

Exhibit 16: Headline revenue (£m) 2013–24e

Exhibit 17: Underlying revenue (£m) 2013–24e

Source: Braemar, Edison Investment Research

Source: Braemar, Edison Investment Research

Exhibit 16: Headline revenue (£m) 2013–24e

Source: Braemar, Edison Investment Research

Exhibit 17: Underlying revenue (£m) 2013–24e

Source: Braemar, Edison Investment Research

The forecast period shows a step-up in continuing revenue in 2022, due in part to strong markets. Thereafter, we forecast only modest overall growth, which does not wholly reflect the company’s stated strategy to double the size of the business in three to four years. This is because a proportion of the growth is likely to be achieved via acquisitions, which we cannot predict. We would therefore suggest there is upside risk to our estimates.

However, looking at the revenue history, it is easy to see that the company has doubled in size before, between 2014 before the Braemar/ACM merger and in 2019, so it is certainly conceivable that the current growth ambitions are realistic and achievable.

Fundamentally cash flow positive

Fundamentally, shipbroking is a cash-generative activity where the main costs are staff salaries, bonuses and social security costs. In addition, the logistics division, which was part of the group until the end of FY22, was a cash flow-positive operation, taking in revenue and passing on fees to third parties. Although this benefit will cease, Braemar will remain operationally cash flow positive, which should help finance the expansion of the group in line with its strategy.

Exhibit 18: Cash flow from operating activity (£m)

Source: Braemar, Edison Investment Research

Net debt of £5.6m implies gearing of just c 8%

Braemar enjoys a strong balance sheet with expected net bank debt of c £5.6m at the end of FY22, down from £8.9m at the end of FY21 and £20m the year before. This implies gearing of c 8%. We expect net bank debt to continue to decline by c £5m pa, which implies that it enters a net cash position in FY23.

In addition to bank debt, Braemar has outstanding loan notes of £2m and deferred consideration due of £2.9m, both of which relate to the purchase of NAVES in 2017. It also has ‘bank loans and other borrowings’ totalling c £6.5m which relate to unexpired lease liabilities. The total debt detailed here is expected to be reduced by the earnout proceeds from the disposal of the logistics division. The total disposal consideration is likely to be at least £10.25m, with an initial cash payment of £6.5m followed by three further payments of between £1.25m and £3m. Because of the business’s positive cash flow characteristics, there should be a working capital adjustment at disposal, which is likely to totally offset the expected £6.5m initial cash payment.

We estimate that the group’s total assets will amount to c £164.0m in FY22 but, as is typical of a broker, the principal asset on the balance sheet is ‘goodwill’, which is largely the result of the acquisition of ACM Shipping in 2014 and NAVES in 2017.

Valuation: Material valuation upside

We believe the current share price and implied valuation multiples largely reflect Braemar’s indifferent financial history and modest market capitalisation, but do not fairly reflect the growth potential that exists within the group. Our DDM suggests a value of 400p/share assuming modest dividend growth of 5.5% pa. Our multiples-based model suggests a value of 391p assuming a P/E of 19x in FY23e. Our DCF suggests that the average of these valuations implies a terminal growth rate of c -5% pa. we argue that all these valuations are modest in magnitude and higher values are likely if management can demonstrate successful execution of its growth strategy.

DDM model suggests a valuation of 400p/share

Shipbroking can be a fairly volatile market, as demonstrated by fluctuations in tanker charter rates, for example, over the last two years, where rates were extremely high in the early months of lockdown as the market was awash with products, but have now fallen to rates rarely seen. However, Braemar is a diversified broker covering numerous markets and therefore although individual income streams can fluctuate, the collective income stream is generally more robust. The revenue and operating profit streams and current forecasts can be seen in the following two charts.

Exhibit 19: Revenue; 2013–24e

Exhibit 20: Operating profit and margin, 2013–24e

Source: Company data, Edison Investment Research

Source: Company data, Edison Investment Research

Exhibit 19: Revenue; 2013–24e

Source: Company data, Edison Investment Research

Exhibit 20: Operating profit and margin, 2013–24e

Source: Company data, Edison Investment Research

Given the historical lack of growth, and the yet to be proved growth strategy, we believe that valuing Braemar on a DDM basis is appropriate as management can influence the size of payments, taking a view on current trading, the outlook for revenue and the company’s financial situation.

Using 7p dividend/share as a base and applying our estimate of the cost of capital and dividend growth rates of 7.25% and 5.0% respectively, we arrive at a valuation of 311p, modestly above the current share price. However, we also know that management is trying to double the size of the business in the next three to four years, so a dividend growth rate in excess of 5% is likely over the longer term. Applying a growth rate of 5.25%, in line with the long-term historical growth rate of competitor Clarkson, implies a value of 350p. Arguably modest in the scheme of things, a growth rate of 5.5% implies a value of 400p, and c 40% upside. The table below suggests a range of implied values for differing costs of capital and dividend growth rates.

Exhibit 21: Implied valuations from a range of inputs

Dividend growth rate (%)

5.00%

5.25%

5.50%

5.75%

6.00%

Cost of capital

8.50%

200.0

215.4

233.3

254.5

280.0

7.75%

254.5

280.0

311.1

350.0

400.0

7.50%

280.0

311.1

350.0

400.0

466.7

7.25%

311.1

350.0

400.0

466.7

560.0

7.00%

350.0

400.0

466.7

560.0

700.0

Source: Edison Investment Research

DDM valuation supported by multiples-based valuation of 391p

Braemar is currently trading on a normalised P/E of c 10.1x in FY23e, while its direct competitor Clarkson trades on a P/E of c 18x in FY22e. Although the latter is a larger organisation generating revenue around four times that of Braemar, the discount between the two ratings appears wide, and we believe it gives little or no credit to Braemar’s ambition to double the size of the business. That said, it is worth commenting that there is material potential dilution in Braemar’s share count, which implies that FY23e EPS falls from 27.9p to 23.0p on a fully diluted basis. This equates to a P/E that rises from 10.1x to 12.2x on a diluted basis, still materially lower than Clarkson’s.

If we were to value Braemar on, say, 17x its 2023e diluted normalised EPS of 23.0p, it would imply a value of 391p, broadly in line with our DDM above. Arguably, this valuation under-estimates the potential valuation because the current EPS forecast does not reflect any success in executing on the stated strategy. Equally, if we apply a multiple of 15.0x, allowing a P/E discount of c 20% relative to Clarkson to account for the broader reach of operations and longer dividend track record, we would still reach a valuation of 345p per share.

Exhibit 22: Multiples-based implied valuation

Multiple (x)

15

17

19

21

23

Implied value (p)*

345

391

437

483

529

Implied premium/(discount) to current price

23.2%

39.6%

56.1%

72.5%

88.9%

Source: Edison Investment Research. Note: *Based on FY23e normalised EPS.

The table below compares the headline figures of Braemar and Clarkson. Clearly, Clarkson is the bigger and more highly rated of the two, but this perhaps highlights the potential upside. For example, within the operating margin it should be noted that pre-central costs, Clarkson generates a margin of 21.6% from shipbroking compared to Braemar’s 16%, suggesting some upside. We estimate that the two companies make similar margins on their financial divisions.

Exhibit 23: Headline comparison of Braemar (to Feb 2022e) with Clarkson (Dec 2021a)

Braemar

Clarkson

Revenue (£m)

101.1

443.3

Operating profit (£m)

9.8

71.1

Operating profit margin (%)

9.7%

16.0%

Net cash/(debt), ex leases (£m)

(5.6)

261.6

Return on Equity (%)

13%

15%

Market capitalisation (£m)

88.8

965.3

P/E (to Feb 2023/Dec 2022, x)*

10.1

18.0

Yield (%)

3.2%

2.8%

Source: Edison Investment Research. Note: *Based on normalised EPS.

A DCF approach highlights the cautious valuation above

As a final cross-check to test the valuation of Braemar suggested above, we have constructed a DCF which suggests that a valuation of c 400p/share can be justified on the assumption of a terminal growth rate of c -5% pa. We would argue that this is very low.

Other key assumptions include:

1.

Revenue growth as per forecasts for years one, two and three.

1.

Revenue growth of 3% pa in years four to 10.

1.

Flat operating profit margins of c 10%.

1.

A WACC of 7.25%, as assumed in our DDM.

To put the DCF into context, a zero terminal growth rate implies a value of 509p/share and, at a modest 2%, the implied valuation would be in excess of 617p/share (not shown in Exhibit 24), more than twice the current share price.

Exhibit 24: DCF valuation range

Terminal growth rate (%)

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

WACC (%)

7.75%

330.5

340.9

374.7

412.7

475.0

7.50%

337.0

348.0

383.7

424.3

491.6

7.25%

343.8

355.3

393.1

436.5

509.5

7.00%

350.8

362.9

403.0

449.3

528.6

6.75%

358.0

370.8

413.2

462.9

549.1

Source: Edison Investment Research

Exhibit 25: Financial summary

£m

2019

2020

2021

2022e

2023e

2024e

28-February

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

117.9

117.7

111.8

101.1

105.2

108.3

Cost of Sales

(24.9)

(18.1)

(17.0)

(2.0)

(2.1)

(2.2)

Gross Profit

93.0

99.5

94.8

99.1

103.1

106.2

EBITDA

 

 

10.4

14.4

12.6

13.5

15.8

16.0

Normalised operating profit

 

 

9.1

11.0

8.9

9.8

12.1

12.3

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(12.5)

(3.8)

1.2

2.3

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

Impairment

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.5

0.7

0.1

0.0

0.0

0.0

Reported operating profit

(2.9)

7.9

10.2

12.1

12.1

12.3

Net Interest

(0.2)

(1.4)

(1.1)

(1.1)

(0.6)

(0.2)

Joint ventures & associates (post tax)

0.0

(0.3)

0.3

(0.0)

0.0

0.0

Profit Before Tax (norm)

 

 

8.9

9.4

8.1

8.7

11.5

12.1

Profit Before Tax (reported)

 

 

(3.1)

6.3

9.4

11.0

11.5

12.1

Reported tax

(1.5)

0.0

(1.8)

(2.1)

(2.5)

(3.0)

Profit After Tax (norm)

7.3

9.4

6.3

6.6

9.0

9.1

Profit After Tax (reported)

(4.7)

6.3

7.6

8.9

9.0

9.1

Discontinued operations

(22.7)

(2.3)

(2.5)

4.6

0.0

0.0

Net income (normalised)

7.3

9.4

6.3

6.6

9.0

9.1

Net income (reported)

(27.4)

4.0

5.1

13.6

9.0

9.1

Basic average number of shares outstanding (m)

31

31

31

32

32

32

EPS - basic normalised (p)

 

 

23.78

30.19

20.03

20.76

27.86

28.26

EPS - diluted normalised (p)

 

 

21.79

27.28

16.57

17.12

23.00

23.33

EPS - basic reported (p)

 

 

(88.63)

12.88

16.24

42.51

27.86

28.26

Dividend (p)

5.00

5.00

5.00

7.00

9.00

9.25

Revenue growth (%)

14.4

(-0.2)

(-5.0)

(-9.5)

4.0

3.0

Gross Margin (%)

78.9

84.6

84.8

98.0

98.0

98.0

EBITDA Margin (%)

8.8

12.3

11.3

13.3

15.0

14.8

Normalised Operating Margin

7.7

9.4

8.0

9.7

11.5

11.4

BALANCE SHEET

Fixed Assets

 

 

91.7

114.7

106.6

106.7

105.6

104.4

Intangible Assets

86.0

86.2

86.1

86.7

87.3

87.9

Tangible Assets

2.0

11.9

9.8

9.3

7.6

5.8

Investments & other

3.7

16.5

10.7

10.7

10.7

10.7

Current Assets

 

 

71.9

68.3

51.7

57.5

68.9

79.5

Debtors

37.1

39.5

34.8

33.4

33.7

34.7

Cash & cash equivalents

24.1

28.7

16.4

23.7

34.8

44.4

Other

10.6

0.0

0.4

0.4

0.4

0.4

Current Liabilities

 

 

92.0

103.8

76.8

75.6

82.0

88.1

Creditors

44.9

48.6

46.3

40.5

42.1

43.4

Tax and social security

1.4

1.3

1.3

1.6

2.0

2.6

Short term borrowings

35.8

48.8

23.0

27.0

31.0

35.0

Other

9.8

5.1

6.2

6.5

6.8

7.2

Long Term Liabilities

 

 

13.2

21.7

17.9

17.9

17.9

17.9

Long term borrowings

4.6

2.4

1.2

1.2

1.2

1.2

Other long term liabilities

8.6

19.3

16.7

16.7

16.7

16.7

Net Assets

 

 

58.4

57.5

63.6

70.7

74.6

78.0

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

58.4

57.5

63.6

70.7

74.6

78.0

CASH FLOW

Op Cash Flow before WC and tax

(1.8)

9.7

13.1

14.7

15.1

15.8

Working capital

4.6

(0.4)

4.1

(4.0)

1.7

0.6

Tax

(1.1)

1.2

(0.8)

(1.8)

(2.1)

(2.5)

Other

6.1

1.4

(2.4)

0.4

0.5

0.0

Net operating cash flow

 

 

7.8

11.8

13.9

9.3

15.2

13.9

Capex

(2.4)

(1.7)

(1.1)

(1.3)

(1.3)

(1.3)

Acquisitions/disposals

(1.7)

(6.3)

3.7

5.8

1.3

1.3

Net interest

(0.9)

(1.5)

(1.2)

(1.1)

(0.6)

(0.2)

Equity financing

23.0

3.9

(28.9)

1.0

1.0

1.0

Dividends

(4.6)

(4.6)

0.6

(0.6)

(2.3)

(2.9)

Other

(2.4)

0.0

(0.9)

(4.2)

(2.1)

(2.1)

Net Cash Flow

18.7

1.6

(13.9)

8.8

11.1

9.6

Opening net debt/(cash)

 

 

2.4

11.7

20.0

8.9

5.6

(1.5)

FX

(1.1)

(0.8)

(0.7)

(0.6)

0.0

0.0

Other non-cash movements

(26.9)

(9.0)

25.7

(5.0)

(4.0)

(4.0)

Closing net debt/(cash) (excluding leases)

 

 

11.7

20.0

8.9

5.6

(1.5)

(7.1)

Closing net debt/(cash) (including leases)

11.7

31.0

17.5

14.2

7.1

1.6

Source: Braemar and Edison Investment Research

Contact details

Revenue by geography

One Strand
Trafalgar Square
London
WC2N 5HR
United Kingdom
+44 (0)20 3142 4100
www.braemar.com

Contact details

One Strand
Trafalgar Square
London
WC2N 5HR
United Kingdom
+44 (0)20 3142 4100
www.braemar.com

Revenue by geography

Management team

Non-executive Chairman: Nigel Payne

Group Chief Executive Officer: James Gundy

Nigel joined Braemar’s board in May 2021. He has over 30 years’ experience on public and private boards, both as an executive and non-executive director. From 2000 to 2006, Nigel was the CEO of Sportingbet, which at the time was one of the world's largest internet gaming companies. He has previously been non-executive chairman of AIM companies EG Solutions; Stride Gaming; Hangar8; and ECSC, and a non-executive director of AIM-quoted Gama Aviation. Nigel is presently non-executive chairman of AIM-quoted Gateley and a non-executive director of AIM-quoted GetBusy.

James was appointed group CEO on 1 January 2021, having been the CEO of Braemar’s shipbroking division since joining the company in 2014 following the merger with ACM Shipping Group, where he was chief executive officer. He has been a shipbroker for 35 years, specialising in tankers and S&P projects.

Chief Financial Officer: Nick Stone

Group Chief Operating Officer: Tris Simmonds

Nick has been group CFO since April 2019. He was previously CFO of The Appointment Group and was formerly director of a number of listed companies including Hornby and KBC Advanced Technologies.

Tris joined the board on 1 August 2021. He has approximately 30 years’ experience in the commodities industry. Tris founded Atlantic Brokers in 2013, which was sold to Braemar in 2018, creating its derivative brokerage business. Tris formerly worked at GFI Group for 14 years, latterly as head of European commodities.

Management team

Non-executive Chairman: Nigel Payne

Nigel joined Braemar’s board in May 2021. He has over 30 years’ experience on public and private boards, both as an executive and non-executive director. From 2000 to 2006, Nigel was the CEO of Sportingbet, which at the time was one of the world's largest internet gaming companies. He has previously been non-executive chairman of AIM companies EG Solutions; Stride Gaming; Hangar8; and ECSC, and a non-executive director of AIM-quoted Gama Aviation. Nigel is presently non-executive chairman of AIM-quoted Gateley and a non-executive director of AIM-quoted GetBusy.

Group Chief Executive Officer: James Gundy

James was appointed group CEO on 1 January 2021, having been the CEO of Braemar’s shipbroking division since joining the company in 2014 following the merger with ACM Shipping Group, where he was chief executive officer. He has been a shipbroker for 35 years, specialising in tankers and S&P projects.

Chief Financial Officer: Nick Stone

Nick has been group CFO since April 2019. He was previously CFO of The Appointment Group and was formerly director of a number of listed companies including Hornby and KBC Advanced Technologies.

Group Chief Operating Officer: Tris Simmonds

Tris joined the board on 1 August 2021. He has approximately 30 years’ experience in the commodities industry. Tris founded Atlantic Brokers in 2013, which was sold to Braemar in 2018, creating its derivative brokerage business. Tris formerly worked at GFI Group for 14 years, latterly as head of European commodities.

Principal shareholders

(%)

Hargreaves Lansdown Asset Management

8.5

Interactive Investor

7.5

SG Hambros Trust

6.2

Unicorn Investment Funds

6.2

Braemar Shipping Services Trustees

5.3

Horizon Kinetics

5.0

Barclays

4.5

Charles Stanley Group

4.1

Quentin Bruce Soanes

4.0

MH Capital A/S

3.5


General disclaimer and copyright

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Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Braemar Shipping Services and prepared and issued by Edison, in consideration of a fee payable by Braemar Shipping Services. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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