Long-term expansion remains the key target
FY25 results were affected by weaker charter rates, but they also highlight the resilience
that has been driven into the business by the focus on shipbroking across a wide range
of activities and geographies. This diversification process has a long way to go,
with the markets, Braemar’s balance sheet and increased regulation supportive of this
ambition. The new 2030 targets are ambitious, but achievable, and the capital allocation
away from dividends towards share buybacks should provide EPS support. We have adjusted
our forecasts to reflect the current muted outlook, but note there are ‘green shoots’
of recovery that should boost profits with, or without, significant desk hires or
M&A.
Tough markets highlight operational resilience
In FY25, the seasonal H2 upswing in charter rates failed to materialise due to geopolitical
reasons, which led to revenue declining 7.1% to £141.9m. Operating profit also reduced,
but by only 5.7% to £15.6m, implying that the underlying operating margin edged up
from 10.8% to 11.0%. Continuing diluted EPS fell 13.5% to 28.0p and net cash of £1.0m
at the end of FY24 was affected by adverse working capital movements, which led to
a FY25 net debt position of £2.5m. This negative year-end situation was reversed shortly
after the period close. Braemar’s forward order book at the year-end was $82.2m (FY24
$82.6m), indicating resilience.
In a significant change, Braemar introduced a new capital allocation policy. This
led to a reduction in the final dividend and therefore a reduced total full-year dividend,
from 13.0p to 7.0p. However, although this implies a £1.9m saving in dividend payments,
the company introduced a £2.0m share buyback programme, thus resulting in a modest
increase in the total payout to shareholders with respect of FY25. We discuss the
capital allocation policy in more detail below.
Exhibit 1: FY results summary and history |
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Source: Braemer, Edison Investment Research |
In the key Chartering division, tankers, which accounted for c 40% of divisional revenue
in FY24, saw revenue decline by £11.7m, or 21%, reflecting the c 14% fall in the Braemar
Tanker Index in the period. Revenue from specialised tankers fell £2.8m and dry cargo
slipped £1.2m. Offshore and renewables was the only area of growth, up £1.1m, but
this sub-division accounts for only c 10% of the overall Chartering division.
In Investment Advisory, sale and purchase was particularly strong, growing revenue
from £23.5m to £27.9m, as second-hand activity across various markets was high and
asset values were strong. Corporate finance revenue rose modestly, from £2.2m to £2.3m.
Braemar’s Risk Advisory division reported a modest decline of 3% to £22.3m as market
volatility affected most of the derivative desks negatively, but Braemar took market
share in some, benefiting from its proprietary systems and from new Organised Trading
Facility (OTF) licences.
Overall costs declined from £134.7m to £125.1m with the fall in staff costs (ie bonuses)
being the major contributor to the decline (£10.9m). This is a natural hedge inherent
in the business. Offsetting the fall in staff costs were professional fees, which
increased £0.6m, reflecting the cost of the OTF licences and IT and bad debts that
rose £1.1m.
Growth strategy to drive revenue to over £200m by 2030
With the FY25 results, Braemar announced a revised strategic framework for growth
with the explicit target of generating revenue of over £200m per year by 2030 by becoming
the trusted broker of choice to the shipping and energy markets. It intends to achieve
this through:
Exhibit 2: Global growth opportunities |
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Source: Braemar |
If successful, the 2030 revenue target implies annual revenue growth of c 7%, which
we believe is achievable, especially with Braemar having achieved average revenue
growth of c 10% per year over the last 12 years. However, if the company was also
able to generate the 15% underlying operating margin target outlined, it implies an
operating profit of c £30m in FY30, compared to the £15.6m achieved in FY25, and a
record level of £20.1m achieved in FY23. Furthermore, Braemar is expecting to utilise
its balance sheet by temporarily taking net debt up to a maximum of 1.5x EBITDA, which
offers c £22m for investment or M&A headroom.
Exhibit 3: Underlying revenue, 2013 to 2025 (£m) |
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Source: Braemar and Edison Investment Research |
Capital allocation revised
Along with the revised group strategy, Braemar has updated its capital allocation
framework, to generate a better balance between investment and growth, and facilitate
the return of excess capital to shareholders. There are four pillars:
- Maintain a robust balance sheet with net debt of less than 1.5x EBITDA.
- Invest in talent, which implies attracting the right individuals to the group.
- Invest in M&A.
- Maintain attractive shareholder returns via dividends and share buybacks.
We believe that with the company perhaps more willing to take on short-term debt to
finance acquisitions or invest in talent, achievement of the targets mentioned above
becomes more achievable. We estimate that in FY26e Braemar is likely to generate an
EBITDA of £16.3m, which implies taking the debt up to c £24m. This therefore implies
headroom of £22m given that we expect net debt to be £2m at the end of FY26e, before
any investment spending.
Revised estimates
Braemar continues to be affected by the volatile conditions in the global markets
and it has therefore guided the market to FY26 underlying operating profit, pre-acquisition
related expenditure, of £13–14m. When the c £1.0m of M&A expenditure is included,
our FY26e underlying operating profit figure of £12.5m is within the range. Given
the year-on-year decline in profit, our previous FY26 net cash estimate of £1.0m becomes
a net debt figure of £2.0m.
Also worth noting is the flat dividend in FY26e following the revision of the capital
allocation policy. Given that there are some signs of recovery in charter rates and
that the order book is flat year-on-year, we forecast a return to modest growth in
FY27e.
Exhibit 4: Revised estimates table (£m) |
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Source: Braemar and Edison Investment Research |
Valuation: Move to multiple-based approach
We previously valued Braemar on a dividend discount model basis at 535p/share. However,
given the change in the capital allocation policy, we believe it is better to now
value the company on an earnings basis.
In the table below, we have laid out the actual FY25 revenue and ‘real’ underlying
operating profit, and our FY26e estimates of the same. We have then included a 2030
target based on Braemar’s new corporate targets and added a ‘mid-target’, which is
the midpoint between FY26e revenue and profit estimates, and the 2030 target revenue
and implied profit given the 15% operating margin target. In both the mid-target column
and the 2030 target, we have applied interest costs that are similar to FY26e and
a 25% corporation tax charge.
In the ‘mid-target’ scenario we arrive at an EPS of 37.0p, which implies a value per
share of 462p when we apply a 12.5x P/E multiple. This multiple is a discount to Braemar’s
average P/E of 15.1x over the last four years and also below the average of peer Clarkson,
which we believe is 13.1x. Given the growth targeted by Braemar, applying a mid-cycle
multiple to mid-cycle earnings would seem to be fair and offers upside if the multiple
applied was raised from 12.5x to Braemar’s 15.1x average.
Exhibit 5: Valuation table (£m) |
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Source: Edison Investment Research |