Braemar — Interims in line, growth strategy developing

Braemar (LSE: BMS)

Last close As at 26/02/2024

GBP2.75

8.00 (3.00%)

Market capitalisation

GBP88m

More on this equity

Research: Industrials

Braemar — Interims in line, growth strategy developing

Braemar’s H124 results were in line with expectations with revenues up by 8%, but operating profits were down, having been hit by one-off costs. The underlying operations continue to expand and diversify, and the company remains well-positioned to drive its future growth strategy. The trading outlook is promising and Braemar should be able to leverage its strong balance sheet in pursuit of strategic growth. We have maintained our underlying revenue and operating profit estimates for FY24 and FY25 and retain our 520p per share valuation, offering c 85% upside.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Black cargo ship

Industrials

Braemar

Interims in line, growth strategy developing

H124 results

Industrial support services

7 December 2023

Price

285p

Market cap

£94m

US$1.26/£

Net cash (£m) at 31 August 2023

3.1

Shares in issue, including ESOP shares

32.9m

Free float

85%

Code

BMS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.5

21.5

(9.0)

Rel (local)

19.2

20.1

(8.6)

52-week high/low

321p

224p

Business description

Braemar 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

FY24 trading update

February 2024

FY24 preliminary results

April 2024

Analyst

Andy Murphy

+44 (0)20 3077 5700

Braemar is a research client of Edison Investment Research Limited

Braemar’s H124 results were in line with expectations with revenues up by 8%, but operating profits were down, having been hit by one-off costs. The underlying operations continue to expand and diversify, and the company remains well-positioned to drive its future growth strategy. The trading outlook is promising and Braemar should be able to leverage its strong balance sheet in pursuit of strategic growth. We have maintained our underlying revenue and operating profit estimates for FY24 and FY25 and retain our 520p per share valuation, offering c 85% upside.

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/22

101.3

8.9

23.1

9.0

12.4

3.2

02/23

152.9

18.0

45.5

12.0

6.3

4.2

02/24e

150.2

15.0

45.4

13.5

6.3

4.7

02/25e

150.2

15.8

46.6

14.0

6.1

4.9

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

In line interims highlight the benefit of diversification

In H124 Braemar reported revenue of £74.9m (up by 8%), with weaker rates in certain sectors more than offset by the inclusion of Southport Maritime and two new broking desks. Underlying operating profit was down but in line with expectations at £6.7m, due to a £2.8m swing in FX and to acquisition-related expenditure of £0.9m. Adding back these two factors implies that underlying operating profit was down less than 5%, highlighting earnings resilience due to diversification. Underlying, continuing and diluted EPS fell by 35.1% to 15.8p, but the interim dividend was held at 4p, and net cash rose more than 70% to £3.1m (from £1.8m in the comparable period).

Strategy on track to achieve doubling of profit

Braemar retains its medium-term target of achieving a sustainable doubling of the FY21 underlying operating profit of £8.9m by FY25. Management confirmed in its H124 release that Braemar will achieve underlying operating profit, before the Madrid tanker desk cost of c £1.3m, of £18m. FY25 is expected to be similar to FY24. We remain confident that this is achievable because the company is likely to continue to use the undergeared balance sheet to bring in teams of brokers in activities and/or regions where it is under-represented or absent. The recent acquisitions of Southport Maritime and the Madrid tanker desk are good examples.

Valuation: Unchanged forecasts and 520p valuation

The H124 outlook statement suggests a robust trading environment in FY24 and into FY25. Management anticipates that underlying operating profit in FY24 will be ‘not less than £18m’, excluding c £1.3m of costs relating to the acquisition of the Madrid office, and that it would double the FY21 profits by FY25. We have maintained our revenue and operating profit estimates, but EPS and net cash forecasts have risen due to adjusted treatment of the employee stock ownership plan (ESOP). However, we retain our dividend discount model-based valuation of 520p per share as our dividend forecasts are unchanged.

Diversification offers growth and reduces risks

Now that the historical transaction investigation has been completed and non-core businesses disposed of, Braemar is well placed to diversify within its core shipbroking activities. The strength of its increasingly diversified revenues is partially hidden in H124 by the impact of an FX reversal and the accounting treatment of the acquisition costs associated with some of the acquired businesses. That said, the company is well placed to continue to expand its activities and its geographical spread.

Braemar’s group revenue increased by c 8% in H124, which was driven by a number of differing factors (both positive and negative) in the period. We discuss each in turn below.

The largest division, Chartering, grew revenue by 17% to £52.6m in H124, driven by Deep Sea Tankers, which saw revenue increase by 68% to £28.5m. It accounts for more than half of divisional revenue and was driven by ‘relatively robust’ rates and a £10m contribution from the new businesses in the US and Spain. Specialised Tankers grew revenue by 15% to £9.3m as it expanded internationally but was partially held back by softer rates. Offshore Energy Services grew revenue by 70% to £3.8m as oil and gas activity picked up and offshore wind continued to grow. Dry Cargo revenue fell by 37% to £11.0m as rates declined, but volumes remained similar to prior levels. Despite the increase in revenue, underlying operating profit declined c 8% due to the inclusion of costs relating to the new businesses.

Exhibit 1: H1 results summary

£m

H122

H123

% chg

H124

% chg

Chartering

26.8

44.9

67.7

52.6

17.1

Investment advisory

15.1

16.3

8.4

12.4

(23.8)

Risk advisory

5.6

8.2

47.5

9.9

20.6

Revenue

47.4

69.4

46.5

74.9

7.9

Chartering

2.5

6.9

176.9

6.4

(7.9)

Investment advisory

4.2

3.7

(11.5)

1.7

(55.3)

Risk advisory

1.0

1.5

52.7

1.4

(5.4)

Operating profit

7.7

12.1

58.1

9.4

(22.1)

Central costs

(2.1)

(1.2)

(41.2)

(2.7)

124.8

Underlying operating profit

5.6

10.9

94.6

6.7

(38.4)

Chartering

9.3%

15.4%

-

12.1%

-

Investment advisory

27.9%

22.8%

-

13.4%

-

Risk advisory

17.1%

17.7%

-

13.9%

-

Underlying operating margin

11.8%

15.7%

-

9.0%

-

PBT

4.8

10.1

109.0

9.5

(6.1)

EPS continuing, diluted (p)

11.2

24.4

117.8

15.8

(35.1)

DPS (p)

2.0

4.0

100.0

4.0

0.0

Net (debt)/cash

(12.4)

1.8

N/A

3.1

(54.8)

Source: Braemar, Edison Investment Research

The second largest division, Investment Advisory, has a ‘lumpier’ revenue stream and suffered a 24% decline in revenue to £12.4m. Sale and Purchase, the largest divisional revenue contributor, witnessed a 16% decline in revenue to £11.3m as a lack of prompt newbuilding slots hampered activity. Elsewhere, activity in second-hand tankers, gas carriers and dry bulk deals was robust. Corporate Finance revenue declined by 60% to £1.2m as deal activity was subdued. Profit more than halved to £1.7m as a result.

Risk Advisory revenue increased by 21% to £9.9m as it expanded its global product range, which now includes Natural Gas, EU carbon allowances, Liquified Natural Gas Freight Forwarding Arrangements and oil derivatives. However, an increase in headcount costs led to a modest decline in profit to £1.4m.

Revised EPS and net cash forecasts

We updated our estimates after the release of the FY23 results and, following the interims, we have made no material changes to our revenue and profit estimates. We have, however, updated our model to reflect changes to our ESOP share treatment, which has resulted in a declining number of shares in issue and an increase in cash. In FY24e, EPS increases by 7% and cash remains unchanged, while, in FY25e, EPS (diluted, normalised) is increased by 10.7% to 37.0p and net cash rises by £4.4m to £15.2m. Our valuation is based on a dividend discount model and we have made no changes to it, but, with an increased EPS estimate, there would appear to be risks to the upside for dividends.

Exhibit 2: Revised forecasts

£m

2023

2024

2025

Old

New

% chg

Old

New

% chg

Revenue

152.9

150.2

150.2

0.0%

150.2

150.2

0.0%

Year-on-year % change

50.9%

-1.8%

-1.8%

-

0.0%

0.0%

-

EBITDA - Edison basis

23.4

20.1

20.1

0.0%

20.4

20.4

0.2%

Year-on-year % change

73.1%

-14.1%

-14.2%

-

1.5%

1.7%

-

Underlying operating profit

20.1

16.7

16.7

0.3%

17.1

17.1

-0.1%

Year-on-year % change

99.6%

-16.6%

-16.6%

-

2.4%

2.0%

-

Normalised operating profit

20.1

16.7

16.7

0.3%

17.1

17.1

-0.1%

Year-on-year % change

99.6%

-16.9%

-16.6%

-

2.4%

2.0%

-

PBT (reported, pre-exceptionals)

9.5

11.2

9.9

-11.7%

14.2

14.5

2.1%

Year-on-year % change

10.6%

18.2%

4.7%

-

26.8%

46.6%

-

EPS - diluted, normalised (p)

37.8

34.0

36.4

7.0%

33.4

37.0

10.7%

Year-on-year % change

77.8%

-8.3%

-3.8%

-

-1.8%

1.6%

-

DPS (p)

12.0

13.5

13.5

0.0%

14.0

14.0

0.0%

Year-on-year % change

33.3%

12.5%

12.5%

-

3.7%

3.7%

-

Net cash (pre IFRS 16)

6.9

4.0

4.0

0.7%

10.8

15.2

40.4%

Year-on-year % change

-174.1%

-41.5%

-41.8%

-

170.0%

276.3%

-

Source: Edison Investment Research

Exhibit 3: Financial summary

2019

2020

2021

2022

2023

2024e

2025e

2026e

Year end 28 February

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

117.9

117.7

83.7

101.3

152.9

150.2

150.2

150.2

EBITDA

 

 

10.4

14.4

11.4

13.5

23.4

20.1

20.4

20.8

Normalised operating profit

 

 

9.1

11.0

7.7

10.1

20.1

16.7

17.1

17.4

Exceptionals

(12.5)

(3.8)

(1.5)

(0.3)

(2.5)

(2.6)

(1.3)

0.0

Impairment

0.0

0.0

0.0

0.0

(9.1)

0.0

0.0

0.0

Other

0.5

0.7

0.0

0.0

3.0

(2.5)

0.0

0.0

Reported operating profit

(2.9)

7.9

6.2

9.7

11.5

14.1

15.8

17.4

Net Interest

(0.2)

(1.4)

(1.1)

(1.2)

(2.0)

(1.8)

(1.3)

0.1

Joint ventures & associates (post tax)

0.0

(0.3)

0.0

(0.0)

(0.0)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

8.9

9.4

6.7

8.9

18.0

15.0

15.8

17.5

Profit Before Tax (reported)

 

 

(3.1)

6.3

5.1

8.5

9.5

9.9

14.5

17.5

Reported tax

(1.5)

0.0

(1.6)

(1.8)

(4.9)

(2.5)

(3.6)

(4.4)

Profit After Tax (norm)

7.3

9.4

5.1

7.0

13.2

12.5

12.2

13.1

Profit After Tax (reported)

(4.7)

6.3

3.6

6.7

4.6

7.4

10.9

13.1

Discontinued operations

(22.7)

(2.3)

1.0

7.2

0.0

0.0

0.0

0.0

Net income (normalised)

7.3

9.4

5.1

7.0

13.2

12.5

12.2

13.1

Net income (reported)

(27.4)

4.0

4.5

13.9

4.6

7.4

10.9

13.1

Basic average number of shares outstanding (m)

31

31

31

31

29

28

26

25

EPS - basic normalised (p)

 

 

23.78

30.19

16.23

23.06

45.48

45.36

46.57

52.97

EPS - diluted normalised (p)

 

 

21.79

27.28

13.43

18.79

37.85

36.39

36.97

41.58

EPS - basic reported (p)

 

 

(88.63)

12.88

14.45

45.56

15.85

26.89

41.51

52.97

Dividend (p)

5.00

5.00

5.00

9.00

12.00

13.50

14.00

15.00

Revenue growth (%)

14.4

(0.2)

(28.9)

21.0

50.9

(1.8)

0.0

0.0

EBITDA Margin (%)

8.8

12.3

13.6

13.4

15.3

13.4

13.6

13.8

Normalised Operating Margin (%)

7.7

9.4

9.2

9.9

13.1

11.1

11.4

11.6

BALANCE SHEET

Fixed Assets

 

 

91.7

114.7

106.6

99.8

97.7

94.2

90.7

87.2

Intangible Assets

86.0

86.2

86.1

80.9

75.4

74.2

73.1

72.0

Tangible Assets

2.0

11.9

9.8

7.1

5.3

3.0

0.6

(1.8)

Investments & other

3.7

16.5

10.7

11.9

17.0

17.0

17.0

17.0

Current Assets

 

 

71.9

68.3

50.3

49.8

80.3

83.4

94.7

107.7

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

37.1

39.5

33.4

35.8

43.3

49.4

49.6

49.6

Cash & cash equivalents

24.1

28.7

16.4

14.0

36.0

33.1

44.2

57.2

Other

10.6

0.0

0.4

0.0

1.0

1.0

1.0

1.0

Current Liabilities

 

 

92.0

78.9

54.0

43.4

65.8

63.8

67.0

69.9

Creditors

44.9

47.6

47.8

39.9

58.4

56.7

56.7

56.7

Tax and social security

1.4

1.3

1.3

1.6

4.1

1.8

2.9

3.7

Short term borrowings

35.8

25.1

0.0

0.0

0.0

0.0

0.0

0.0

Other

9.8

4.8

4.9

1.9

3.3

5.4

7.4

9.5

Long Term Liabilities

 

 

13.2

44.9

39.9

34.8

35.4

35.4

35.4

35.4

Long term borrowings

4.6

2.6

2.7

2.8

2.9

2.9

2.9

2.9

Other long term liabilities

8.6

42.2

37.3

32.0

32.6

32.6

32.6

32.6

Net Assets

 

 

58.4

59.2

62.9

71.5

76.7

78.4

83.0

89.6

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

58.4

59.2

62.9

71.5

76.7

78.4

83.0

89.6

CASH FLOW

Op Cash Flow before WC and tax

(1.8)

9.7

8.8

12.0

12.8

13.3

17.9

20.9

Working capital

4.6

(0.4)

4.1

5.2

4.1

(5.7)

1.9

2.1

Exceptional & other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Tax

(1.1)

1.2

(0.8)

(2.2)

(4.4)

(4.9)

(2.5)

(3.6)

Other

6.1

1.4

1.8

6.2

11.4

2.9

2.4

1.1

Net operating cash flow

 

 

7.8

11.8

13.9

21.3

23.9

5.6

19.8

20.4

Capex

(2.4)

(1.7)

(1.1)

(1.2)

(0.8)

(1.6)

(1.6)

(1.6)

Acquisitions/disposals

(1.7)

(6.3)

3.7

(8.1)

5.4

1.4

1.3

1.3

Net interest

(0.9)

(1.5)

(1.2)

(0.8)

(1.8)

(1.8)

(1.3)

0.1

Equity financing

23.0

3.9

(28.9)

(2.5)

1.4

1.4

1.4

1.4

Dividends

(4.6)

(4.6)

0.6

(2.1)

(3.2)

(3.9)

(4.4)

(4.6)

Other

(2.4)

0.0

(0.9)

(7.0)

(6.8)

(4.0)

(4.0)

(4.0)

Net Cash Flow

18.7

1.6

(13.9)

(0.5)

18.1

(2.9)

11.1

13.0

Opening net debt/(cash)

 

 

2.4

11.7

20.0

8.8

9.3

(6.9)

(4.0)

(15.2)

FX

(1.1)

(0.8)

(0.7)

0.3

2.6

0.0

0.0

0.0

Other non-cash movements

(26.9)

(9.0)

25.8

(0.3)

(4.5)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

11.7

20.0

8.8

9.3

(6.9)

(4.0)

(15.2)

(28.1)

Source: Company data, Edison Investment Research


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20 Red Lion Street

London, WC1R 4PS

United Kingdom

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