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GBP76m
Research: Industrials
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.
Braemar |
Interims in line, growth strategy developing |
H124 results |
Industrial support services |
7 December 2023 |
Share price performance
Business description
Next events
Analyst
Braemar is a research client of Edison Investment Research Limited |
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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 |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
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
|
|
Research: Consumer
Loungers continues to show that UK hospitality in the guise of an innovative, all-day value offer can deliver significant and sustained profit growth despite sector headwinds. H124 adjusted EBITDA (IAS 17) was 28% higher due to a like-for-like sales increase (+7.7%) and scale benefits from accelerated expansion (over 15% in the last year). Such momentum may only be reinforced by a burgeoning pipeline in a property market that management expects to remain favourable for the foreseeable future and thus conducive to a potential long-term trebling of the estate, which could be funded internally on the current model. A consensus FY24e EV/EBITDA (based on IAS 17 accounting standard) of 6.5x compares with a c 9x historical exit multiple for Restaurant Group, Loungers’ closest listed peer.