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Research: Industrials
Braemar Shipping Services
Braemar Shipping Services |
Cyclical challenges continue |
Trading update |
Industrial support services |
24 January 2017 |
Share price performance
Business description
Next events
Analysts
Braemar Shipping Services is a research client of Edison Investment Research Limited |
While the shipbroking activity continues to trade in line with expectations, weakness in the oil & gas market has continued to adversely impact the Technical division. Corrective actions have been accelerated, with £6m of benefit expected in FY18. FY17 EBIT guidance is cut to £3-3.5m and the reduced dividend should more closely reflect the underlying earnings potential, with an historic yield of 5.7% likely to build as earnings recover.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
02/15 |
145.6 |
11.22 |
32.3 |
26.0 |
7.6 |
10.6 |
02/16 |
159.1 |
13.37 |
34.7 |
26.0 |
7.1 |
10.6 |
02/17e |
140.0 |
3.0 |
8.0 |
14.0 |
30.6 |
5.7 |
02/18e |
138.0 |
7.7 |
20.6 |
14.0 |
11.9 |
5.7 |
Note: *PBT and EPS are normalised, excluding acquired intangibles and exceptional items.
Oil & gas spending crunch persists
Shipbroking, which generates over 40% of revenues, continues to trade in line with expectations for FY17. However, weaker trading elsewhere in Braemar’s diversified portfolio has led to a significant profit warning. The deterioration in trading conditions for the Technical division noted at the interims has worsened further, leading to an extension of the previously announced realignment programme. The weakness has been driven by the depressed spending levels in the oil & gas market, which have led to a “marked” reduction in replacement contracts. Corrective actions have included the installation of new management change and changes to a regional operating structure. In addition, the smaller Logistics division has seen weakness in its freight forwarding activity due to weak international trade flows, undermining the continued strength of the port agency business.
FY18 earnings recovery anticipated
Guidance has thus been cut significantly for FY17, with adjusted EBIT now expected to be £3.0-3.5m. Two significant one-offs are noted, although excluded from the adjusted EBIT. Braemar will book a £1.7m pre-tax gain from the disposal of its interest in the Baltic Exchange, and there is a charge of £2.7m relating to restructuring costs, which should yield in excess of £6m in benefits in FY18. Net cash balances at the end of December 2016 were £1.7m, some £3.3m better than the previous year, with significant capacity available through the £30m undrawn debt facility. The FY18 trading outlook also appears challenging with no indications of improved trading conditions across the group at present. We have reduced our PBT forecast by almost a third to £7.7m (from £11.7m), or EPS of 20.6p (29.4p.)
Valuation: Yield reduced but supportive
Management has decided to reduce the dividend payment for the year, reflecting the much reduced trading performance. The final dividend is cut to 5.0p from 17.0p, reducing the full year payment to 14.0p from 26.0p. Management intends to pay dividends on an appropriate level of cover in the medium term, which we believe should be around 1.2x to 1.3x, with a rebalancing of the split at the interim towards a normal 1/3:2/3 interim to final ratio.
Exhibit 1: Financial summary
£'000s |
2014 |
2015 |
2016 |
2017e |
2018e |
||
February |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
125,531 |
145,601 |
159,125 |
140,000 |
138,000 |
Cost of Sales |
(31,758) |
(37,700) |
(33,365) |
(31,200) |
(33,000) |
||
Gross Profit |
93,773 |
107,901 |
125,760 |
108,800 |
105,000 |
||
EBITDA |
|
|
10,552 |
13,553 |
15,871 |
4,600 |
9,300 |
Operating Profit (before amort. and except.) |
9,283 |
11,671 |
13,758 |
3,300 |
8,000 |
||
Intangible Amortisation |
(432) |
(1,772) |
(1,080) |
(400) |
(400) |
||
Exceptionals |
0 |
(4,316) |
(2,365) |
(2,600) |
(1,600) |
||
Operating Profit |
8,851 |
5,583 |
10,313 |
300 |
6,000 |
||
Net Interest |
196 |
(293) |
(387) |
(300) |
(300) |
||
Share in profits from joint ventures |
(88) |
(162) |
0 |
0 |
0 |
||
Discontinued |
(2,209) |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
9,391 |
11,216 |
13,371 |
3,000 |
7,700 |
Profit Before Tax (FRS 3) |
|
|
6,750 |
5,128 |
9,926 |
0 |
5,700 |
Tax |
(2,268) |
(2,187) |
(2,826) |
(600) |
(1,500) |
||
Profit After Tax (norm) |
7,023 |
8,310 |
10,173 |
2,400 |
6,200 |
||
Profit After Tax (FRS 3) |
4,482 |
2,941 |
7,100 |
(600) |
4,200 |
||
Average Number of Shares Outstanding (m) |
20.9 |
25.7 |
29.3 |
30.1 |
30.1 |
||
EPS - normalised (p) |
|
|
33.5 |
32.3 |
34.7 |
8.0 |
20.6 |
EPS - normalised and fully diluted (p) |
|
32.1 |
29.5 |
31.5 |
7.3 |
18.8 |
|
EPS - (IFRS) (p) |
|
|
21.4 |
11.4 |
24.2 |
(2.0) |
14.0 |
Dividend per share (p) |
26.0 |
26.0 |
26.0 |
14.0 |
14.0 |
||
Gross Margin (%) |
74.7 |
74.1 |
79.0 |
77.7 |
76.1 |
||
EBITDA Margin (%) |
8.4 |
9.3 |
10.0 |
3.3 |
6.7 |
||
Operating Margin (before GW and except.) (%) |
7.4 |
8.0 |
8.6 |
2.4 |
5.8 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
40,959 |
87,553 |
88,769 |
90,069 |
89,569 |
Intangible Assets |
31,460 |
79,371 |
79,596 |
79,196 |
78,796 |
||
Tangible Assets |
6,140 |
5,106 |
5,459 |
5,359 |
5,259 |
||
Investments |
3,359 |
3,076 |
3,714 |
5,514 |
5,514 |
||
Current Assets |
|
|
61,681 |
73,731 |
69,632 |
66,541 |
69,389 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
47,351 |
57,442 |
58,135 |
60,248 |
59,387 |
||
Cash |
13,694 |
16,289 |
11,497 |
6,293 |
10,002 |
||
Other |
636 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(36,488) |
(51,162) |
(48,422) |
(52,159) |
(51,719) |
Creditors |
(36,488) |
(44,362) |
(46,622) |
(47,659) |
(47,219) |
||
Short term borrowings |
0 |
(6,800) |
(1,800) |
(4,500) |
(4,500) |
||
Long Term Liabilities |
|
|
(866) |
(5,849) |
(2,674) |
(6,347) |
(3,847) |
Long term borrowings |
0 |
(2,300) |
(500) |
0 |
0 |
||
Other long term liabilities |
(866) |
(3,549) |
(2,174) |
(6,347) |
(3,847) |
||
Net Assets |
|
|
65,286 |
104,273 |
107,305 |
98,103 |
103,392 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
2,158 |
7,259 |
13,459 |
4,081 |
9,495 |
Net Interest |
196 |
(293) |
(387) |
(300) |
(300) |
||
Tax |
(1,358) |
(3,534) |
(2,688) |
(1,157) |
(1,275) |
||
Capex |
(1,247) |
5,512 |
(2,209) |
(1,200) |
(1,200) |
||
Acquisitions/disposals |
(524) |
(10,851) |
0 |
0 |
0 |
||
Financing |
(197) |
601 |
357 |
(1,000) |
0 |
||
Dividends |
(5,441) |
(6,201) |
(7,648) |
(7,829) |
(3,011) |
||
Other including FX exchange differences |
(3,170) |
1,002 |
1,124 |
0 |
0 |
||
Net Cash Flow |
(9,583) |
(6,505) |
2,008 |
(7,404) |
3,709 |
||
Opening net debt/(cash) |
|
|
(23,277) |
(13,694) |
(7,189) |
(9,197) |
(1,793) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(13,694) |
(7,189) |
(9,197) |
(1,793) |
(5,502) |
Source: Company reports, Edison Investment Research estimates
|
|
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