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Research: Industrials
Braemar Shipping Services
Written by
Nigel Harrison
Braemar Shipping Services |
Delivering objectives |
Trading update |
Industrial support services |
15 January 2016 |
Share price performance
Business description
Next event
Analysts
Braemar Shipping Services is a research client of Edison Investment Research Limited |
Management has done much to reduce the likely impact of the shipping cycle in recent years, as emphasised in the current trading update. The 22% discount rating to its peer group, the strong balance sheet and the 6% yield offer sound defensive qualities to the shares.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
02/14 |
125.5 |
9.39 |
32.1 |
26.0 |
13.6 |
6.0 |
02/15 |
145.8 |
10.96 |
28.6 |
26.0 |
15.2 |
6.0 |
02/16e |
158.0 |
13.40 |
31.5 |
26.0 |
13.8 |
6.0 |
02/17e |
165.0 |
13.90 |
32.7 |
26.0 |
13.3 |
6.0 |
Note: *PBT and EPS normalised (and fully diluted), excluding intangible amortisation and exceptional items.
Still on course
Braemar’s trading update highlights the group diversification strategy as a key factor behind trading in the year to February 2016 continuing on track to meet full-year market expectations. Strong activity in tanker markets, supplemented by useful Sale & Purchase business, is more than compensating for challenging conditions in dry cargo and offshore in the Shipbroking operations. Similarly, in Technical, the expected strong trading at Braemar Engineering (LNG tanker work) is more than balancing the impact of a tougher offshore market. Logistics continue to plan, with the further improvements to the longer-term outlook. We do not propose to adjust our estimates.
Strategy to continue to deliver
The figures reinforce management observations about the group diversification strategy. Acquisitions have reduced the reliance on the shipping cycle, with the group having introduced cash-generative businesses where demand is related either to the volume of seaborne trade or the oil and gas sector. Moreover, the broking business has been invigorated by the 2014 merger with ACM. The tone of the trading statement points positively to the medium term, despite challenging trading conditions in several areas of the group business.
Clean balance sheet
While working capital was slightly above expectations at August 2015, we continue to look for a small y-o-y increase in net funds to £8.0m at February 2016.
Valuation: Discount of 22%
Braemar’s share price is close to the level pending at the time of its October interim results announcement. By contrast, market-leader Clarkson saw a sharp adverse reaction to its autumn trading statement, while the share prices of other members of the peer group are higher by up to10% over the same period. On the basis of consensus estimates for calendar 2016, Braemar’s shares are rated at a 22% discount to the average (12.1-15.5x) of the other four companies; this discount fails to reflect the diversification strategy, the strong balance sheet and the above-average yield.
Exhibit 1: Financial summary
£000s |
2013 |
2014 |
2015 |
2016e |
2017e |
||
February |
UK GAAP |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
139,664 |
125,531 |
145,848 |
158,000 |
165,000 |
Cost of Sales |
(43,599) |
(31,758) |
(37,700) |
(38,000) |
(41,000) |
||
Gross Profit |
96,065 |
93,773 |
108,148 |
120,000 |
124,000 |
||
EBITDA |
|
|
12,066 |
10,552 |
13,154 |
15,600 |
16,200 |
Operating Profit (before amort. and except.) |
10,828 |
9,283 |
11,272 |
13,600 |
14,100 |
||
Intangible Amortisation |
(1,498) |
(432) |
(1,772) |
(900) |
(200) |
||
Exceptionals |
0 |
0 |
(4,413) |
(1,500) |
(1,600) |
||
Operating Profit |
9,330 |
8,851 |
5,087 |
11,200 |
12,300 |
||
Net Interest |
255 |
196 |
(293) |
(200) |
(200) |
||
Share in profits from joint ventures |
62 |
(88) |
(22) |
0 |
0 |
||
Discontinued |
(351) |
(2,209) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
11,145 |
9,391 |
10,957 |
13,400 |
13,900 |
Profit Before Tax (FRS 3) |
|
|
9,296 |
6,750 |
4,772 |
11,000 |
12,100 |
Tax |
(2,447) |
(2,268) |
(2,187) |
(3,200) |
(3,300) |
||
Profit After Tax (norm) |
8,698 |
7,023 |
8,051 |
10,200 |
10,600 |
||
Profit After Tax (FRS 3) |
6,849 |
4,482 |
2,585 |
7,800 |
8,800 |
||
Average Number of Shares Outstanding (m) |
20.8 |
20.9 |
25.7 |
30.0 |
30.0 |
||
EPS - normalised (p) |
|
|
41.7 |
33.5 |
31.3 |
34.0 |
35.4 |
EPS - normalised and fully diluted (p) |
|
40.3 |
32.1 |
28.6 |
31.5 |
32.7 |
|
EPS - (IFRS) (p) |
|
|
32.8 |
21.4 |
10.0 |
26.0 |
29.4 |
Dividend per share (p) |
26.0 |
26.0 |
26.0 |
26.0 |
26.0 |
||
Gross Margin (%) |
68.8 |
74.7 |
74.2 |
75.9 |
75.2 |
||
EBITDA Margin (%) |
8.6 |
8.4 |
9.0 |
9.9 |
9.8 |
||
Operating Margin (before GW and except.) (%) |
7.8 |
7.4 |
7.7 |
8.6 |
8.5 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
41,314 |
40,959 |
87,553 |
85,853 |
84,753 |
Intangible Assets |
32,071 |
31,460 |
79,371 |
78,471 |
78,271 |
||
Tangible Assets |
6,426 |
6,140 |
5,106 |
4,306 |
3,406 |
||
Investments |
2,817 |
3,359 |
3,076 |
3,076 |
3,076 |
||
Current Assets |
|
|
68,237 |
61,681 |
73,731 |
73,217 |
77,336 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
44,621 |
47,351 |
57,442 |
59,228 |
61,852 |
||
Cash |
23,277 |
13,694 |
16,289 |
13,989 |
15,484 |
||
Other |
339 |
636 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(38,733) |
(36,488) |
(51,162) |
(49,748) |
(50,167) |
Creditors |
(38,733) |
(36,488) |
(44,362) |
(43,748) |
(45,667) |
||
Short term borrowings |
0 |
0 |
(6,800) |
(6,000) |
(4,500) |
||
Long Term Liabilities |
|
|
(975) |
(866) |
(5,849) |
(3,847) |
(3,847) |
Long term borrowings |
0 |
0 |
(2,300) |
0 |
0 |
||
Other long term liabilities |
(975) |
(866) |
(3,549) |
(3,847) |
(3,847) |
||
Net Assets |
|
|
69,843 |
65,286 |
104,273 |
105,475 |
108,075 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
14,996 |
2,158 |
7,259 |
12,947 |
15,469 |
Net Interest |
251 |
196 |
(293) |
(200) |
(200) |
||
Tax |
(3,625) |
(1,358) |
(3,534) |
(2,947) |
(3,275) |
||
Capex |
(1,198) |
(1,247) |
5,512 |
(1,200) |
(1,200) |
||
Acquisitions/disposals |
(279) |
(524) |
(10,851) |
0 |
0 |
||
Financing |
1,077 |
(197) |
601 |
0 |
0 |
||
Dividends |
(5,412) |
(5,441) |
(6,201) |
(7,800) |
(7,800) |
||
Other including FX exchange differences |
0 |
(3,170) |
1,002 |
0 |
0 |
||
Net Cash Flow |
5,810 |
(9,583) |
(6,505) |
800 |
2,994 |
||
Opening net debt/(cash) |
|
|
(17,467) |
(23,277) |
(13,694) |
(7,189) |
(7,989) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(23,277) |
(13,694) |
(7,189) |
(7,989) |
(10,984) |
Source: Company accounts, Edison Investment Research. Note: Adjusted earnings exclude acquisition intangibles, amortisation and exceptional items. Normalised EPS not adjusted for share-based payments.
|
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