Braemar Shipping Services — Update 30 August 2016

Braemar (LSE: BMS)

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2.50 (0.86%)

Market capitalisation

GBP97m

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Research: Industrials

Braemar Shipping Services — Update 30 August 2016

Braemar Shipping Services

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Industrials

Braemar Shipping Services

Challenging trading climate

Trading update

Industrial support services

30 August 2016

Price

367.00p

Market cap

£110m

Net cash (£m) at 29 February 2016

9.2

Shares in issue

30.1m

Free float

70%

Code

BMS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.5

(5.2)

(8.4)

Rel (local)

(0.7)

(12.2)

(17.6)

52-week high/low

495.00p

391.00p

Business description

Braemar Shipping Services is a leading global shipping services group, with interests ranging from shipbroking to the supply of specialist technical and logistics support to the various parties involved in the transport of goods by sea and in the energy sector.

Next events

Interim results

25 October 2016

Analysts

Nigel Harrison

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

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

While disappointing, the tone of the Braemar trading update should come as no real surprise to markets, given the current trading climate. With a sound balance sheet and a cost-driven profit recovery expected next year, the dividend should be safe, underpinning the share price.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/15

145.6

11.22

32.28

26.0

11.4

7.1

02/16

159.1

13.37

34.70

26.0

10.6

7.1

02/17e

155.0

8.80

22.62

26.0

16.2

7.1

02/18e

160.0

11.70

30.73

26.0

11.9

7.1

Note: *PBT and EPS normalised, excluding intangible amortisation and exceptional items.

Estimates reduced

Trading conditions have been more challenging than we had expected in the current year. A slowdown in Shipbroking was always likely, but the extent of the reduction in both volumes and spot rates in the key deep-sea tanker market has been more severe than expected. Similarly, dry cargo volumes have recovered well, but the adverse impact of shipping overcapacity continues. Other broking desks are in line with earlier expectations, but we now believe that broking profits will be some 15% below our earlier estimates. The impact of the oil price has been even more severe in the Technical division; workloads related to exploration in SE Asia are well below expectations, while new LNG contracts anticipated for Braemar Engineering appear to have been deferred. Management has instigated a major cost-cutting programme, but divisional operating profits will probably be less than half those earned last year. On the other hand, Logistics is performing well and in line with expectations. Despite the weakness of sterling relative to US$, we are reducing our FY17 adjusted PBT estimate from £13.5m to £8.8m; interim results, to be announced on 25 October, will show a sharp profits shortfall.

Strategy still in place

Braemar has reiterated its medium-term strategy, confirming the strength of the balance sheet and forward order book. Benefits of recent investment, especially in Logistics, should continue to develop, while the restructuring in Technical should soon lead to a substantial reduction in the cost base. We expect an earnings recovery mainly driven by cost cutting in FY18, but our revised adjusted PBT estimate of £11.7m is below the £14.0m indicated in our Outlook report last May, although enough to cover a maintained dividend. The difficult current trading climate could lead to a number of opportunities for management; while we now anticipate year-end cash balances to be little different from the £9.2m in February 2016, Braemar has the financial muscle to respond quickly if a suitable opportunity arises.

Valuation: Supported by high yield

Braemar shares have fallen sharply on the announcement. On our revised estimates, the shares are rated at a discount to other shipping service stocks (16.2 x vs 21.3x), but may remain subdued in the short term given the challenging market conditions. They are supported by a high yield.

Financial summary

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016

2017e

2018e

February

UK GAAP

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

139,664

125,531

145,601

159,125

155,000

160,000

Cost of Sales

(43,599)

(31,758)

(37,700)

(33,365)

(36,000)

(39,000)

Gross Profit

96,065

93,773

107,901

125,760

119,000

121,000

EBITDA

 

 

12,066

10,552

13,553

15,871

11,200

14,100

Operating Profit (before amort. and except.)

10,828

9,283

11,671

13,758

9,100

12,000

Intangible Amortisation

(1,498)

(432)

(1,772)

(1,080)

(200)

(200)

Exceptionals

0

0

(4,316)

(2,365)

(3,200)

(1,600)

Operating Profit

9,330

8,851

5,583

10,313

5,700

10,200

Net Interest

255

196

(293)

(387)

(300)

(300)

Share in profits from joint ventures

62

(88)

(162)

0

0

0

Discontinued

(351)

(2,209)

0

0

0

0

Profit Before Tax (norm)

 

 

11,145

9,391

11,216

13,371

8,800

11,700

Profit Before Tax (FRS 3)

 

 

9,296

6,750

5,128

9,926

5,400

9,900

Tax

(2,447)

(2,268)

(2,187)

(2,826)

(1,850)

(2,450)

Profit After Tax (norm)

8,698

7,023

8,310

10,173

6,810

9,250

Profit After Tax (FRS 3)

6,849

4,482

2,941

7,100

3,550

7,450

Average Number of Shares Outstanding (m)

20.8

20.9

25.7

29.3

30.1

30.1

EPS - normalised (p)

 

 

41.7

33.5

32.3

34.7

22.6

30.7

EPS - normalised and fully diluted (p)

 

40.3

32.1

29.5

31.5

20.6

28.0

EPS - (IFRS) (p)

 

 

32.8

21.4

11.4

24.2

11.8

24.8

Dividend per share (p)

26.0

26.0

26.0

26.0

26.0

26.0

Gross Margin (%)

68.8

74.7

74.1

79.0

76.8

75.6

EBITDA Margin (%)

8.6

8.4

9.3

10.0

7.2

8.8

Operating Margin (before GW and except.) (%)

7.8

7.4

8.0

8.6

5.9

7.5

BALANCE SHEET

Fixed Assets

 

 

41,314

40,959

87,553

88,769

87,669

86,569

Intangible Assets

32,071

31,460

79,371

79,596

79,396

79,196

Tangible Assets

6,426

6,140

5,106

5,459

4,559

3,659

Investments

2,817

3,359

3,076

3,714

3,714

3,714

Current Assets

 

 

68,237

61,681

73,731

69,632

70,443

74,328

Stocks

0

0

0

0

0

0

Debtors

44,621

47,351

57,442

58,135

56,628

58,955

Cash

23,277

13,694

16,289

11,497

13,815

15,373

Other

339

636

0

0

0

0

Current Liabilities

 

 

(38,733)

(36,488)

(51,162)

(48,422)

(49,712)

(51,275)

Creditors

(38,733)

(36,488)

(44,362)

(46,622)

(45,212)

(46,775)

Short term borrowings

0

0

(6,800)

(1,800)

(4,500)

(4,500)

Long Term Liabilities

 

 

(975)

(866)

(5,849)

(2,674)

(3,847)

(3,847)

Long term borrowings

0

0

(2,300)

(500)

0

0

Other long term liabilities

(975)

(866)

(3,549)

(2,174)

(3,847)

(3,847)

Net Assets

 

 

69,843

65,286

104,273

107,305

104,553

105,775

CASH FLOW

Operating Cash Flow

 

 

14,996

2,158

7,259

13,459

11,541

13,187

Net Interest

251

196

(293)

(387)

(300)

(300)

Tax

(3,625)

(1,358)

(3,534)

(2,688)

(2,094)

(2,300)

Capex

(1,198)

(1,247)

5,512

(2,209)

(1,200)

(1,200)

Acquisitions/disposals

(279)

(524)

(10,851)

0

0

0

Financing

1,077

(197)

601

357

0

0

Dividends

(5,412)

(5,441)

(6,201)

(7,648)

(7,829)

(7,829)

Other including FX exchange differences

0

(3,170)

1,002

1,124

0

0

Net Cash Flow

5,810

(9,583)

(6,505)

2,008

118

1,558

Opening net debt/(cash)

 

 

(17,467)

(23,277)

(13,694)

(7,189)

(9,197)

(9,315)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(23,277)

(13,694)

(7,189)

(9,197)

(9,315)

(10,873)

Source: Braemar Shipping Services accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Braemar Shipping Services and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Braemar Shipping Services and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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