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Research: Industrials
Braemar Shipping Services
Written by
Roger Johnston
Braemar Shipping Services |
Challenging trading climate |
Trading update |
Industrial support services |
30 August 2016 |
Share price performance
Business description
Next events
Analysts
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 |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
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
|
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