Braemar — Year-end strength drives upgrades

Braemar (LSE: BMS)

Last close As at 13/04/2024

GBP2.72

−0.50 (−0.18%)

Market capitalisation

GBP90m

More on this equity

Research: Industrials

Braemar — Year-end strength drives upgrades

The strong full year trading update confirms that Braemar is in a good position to capitalise further on robust markets and management action taken over the last two years. The debt-free balance sheet leaves Braemar well-positioned to drive its future growth strategy, as previously outlined. The trading outlook is promising and Braemar should be able to leverage its strong balance sheet in pursuit of strategic growth. We have raised our FY24 and FY25 estimates but retain our DDM-based 520p per share valuation.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Braemar

Year-end strength drives upgrades

Forecast upgrades

Industrial support services

4 April 2023

Price

298p

Market cap

£98m

US$1.22/£

Net cash (£m) at 28 February 2023

7.0

Shares in issue

32.9m

Free float

85%

Code

BMS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.0

2.7

37.2

Rel (local)

8.1

1.6

38.0

52-week high/low

340p

227p

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

Preliminary results

End May 2023

Analyst

Andy Murphy

+44 (0)20 3077 5700

Braemar is a research client of Edison Investment Research Limited

The strong full year trading update confirms that Braemar is in a good position to capitalise further on robust markets and management action taken over the last two years. The debt-free balance sheet leaves Braemar well-positioned to drive its future growth strategy, as previously outlined. The trading outlook is promising and Braemar should be able to leverage its strong balance sheet in pursuit of strategic growth. We have raised our FY24 and FY25 estimates but retain our DDM-based 520p per share valuation.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/21

83.7

6.7

16.2

5.0

19.9

1.5

02/22

101.3

8.9

23.1

9.0

14.0

2.8

02/23e

151.7

19.2

45.9

12.0

7.0

3.7

02/24e

153.1

17.5

39.9

13.5

8.1

4.2

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

Solid end to year sees U/L operating profit double

Following a positive trading update issued on 14 February, Braemar confirmed in its 22 March trading update that for the year ending 28 February 2023 trading had remained brisk through to year end, and that it had achieved record revenue and operating profit. Revenue is expected to be ‘not less than £150m’ (FY22: £101.3m), and underlying operating profit ‘not less than £20m’ (FY22: £10.1m), almost double the previous year. There were numerous drivers of growth, including robust underlying markets, a successful change of strategy, two acquisitions and a tailwind from US dollar strength. Finally, Braemar announced that it intends to pay a final dividend of 8p/share for FY23, which equates to a total dividend of 12p for the year, an increase of 33% y-o-y.

Balance sheet strength offers M&A optionality

Following the streamlining of the business by disposing of non-core activities, Braemar has restructured and simplified the reporting lines into three divisions. Management believes that the outlook is encouraging too, with net cash of £6.9m on the balance sheet at year end. We estimate that this will grow this year to c £13m and that Braemar is likely to seek further acquisitions of teams to fill the gaps that it has in unserved, or underserved, markets. These potential deals are not reflected in our estimates and therefore represent upside.

Valuation: 520p/share valuation retained

The trading update confirmed the positive underlying conditions for FY23 and the positive outlook for FY24, driven by good markets and strategic progress. Following the trading update, we retain our existing FY23 underling operating profit estimates, but raise FY24 and FY25 estimates due to more favourable FX assumptions, where we previously assumed that US dollar strength would reverse. This no longer seems likely in these more stable times, hence we assume a rate of US$1.22/£, down from US$1.37/£, in FY24 and FY25. We retain our dividend discount model (DDM) based valuation of 520p/share as our dividend forecasts are unchanged.

FY24 revenue and profit estimates upgraded materially

For FY23, we have raised revenue estimates as the markets have proven to be somewhat stronger than we had previously expected. However, additional costs relating to investment in the business, bonus accruals, share-based payments and the related higher National Insurance costs have resulted in no change at the operating profit level. For FY24, we have made a material change to our US dollar/ sterling exchange rate assumption, moving from c US$1.37/£, to US$1.22/£. We had previously made the cautious assumption that sterling could strengthen back to the c US$1.37/£ level, similar to the rate seen in FY22, but this now seems unlikely as markets are arguably stabilised somewhat. This change in the exchange rate is the material driver of revenue, which partly feeds down to profits, although the increased costs mentioned above feed through into FY24, resulting in a y-o-y decline in operating profit, despite the overall uplift. A similar trend is seen in our FY25 estimates, not shown here.

Exhibit 1: Revised estimates

2022

2023e

2024e

Old

New

% chg

Old

New

% chg

Revenue

101.3

130.6

151.7

16.2%

112.5

153.1

36.1%

Y-o-y % change

21.0%

28.9%

49.7%

-

-13.9%

0.9%

-

EBITDA – Edison basis

13.5

23.6

23.6

0.0%

19.9

21.5

8.1%

Y-o-y % change

18.6%

74.3%

74.3%

-

-15.7%

-8.8%

-

Underlying operating profit

10.1

20.1

20.1

0.1%

16.4

18.0

10.0%

Y-o-y % change

30.3%

99.8%

100.1%

-

-18.4%

-10.4%

-

Normalised operating profit

10.1

20.1

20.1

0.1%

16.4

18.0

10.0%

Y-o-y % change

30.3%

99.8%

100.1%

-

-18.4%

-10.4%

-

PBT (reported, pre-exceptionals)

8.5

19.2

19.2

(-0.2%)

15.9

17.5

10.2%

Y-o-y % change

66.3%

124.7%

124.4%

-

-17.2%

-8.6%

-

EPS – diluted, normalised (p)

18.8

38.2

37.9

(0.8%)

30.5

33.0

8.2%

Y-o-y % change

40.0%

103.3%

101.7%

-

-20.2%

-12.9%

-

DPS (p)

9.0

12.0

12.0

0.0%

13.5

13.5

0.0%

Y-o-y % change

80.0%

33.3%

33.3%

-

12.5%

12.5%

-

Net debt (pre IFRS 16)

-9.3

5.9

7.0

18.1%

11.2

12.8

14.0%

Y-o-y % change

5.1%

-163.5%

-175.0%

-

89.8%

83.2%

-

Source: Braemar Shipping Services, Edison Investment Research

At this stage we have retained our existing dividend estimates, but should these be lifted due to better trading, it is possible that our DDM-based valuation of 520p could rise.


Exhibit 2: Financial summary

£m

2020

2021

2022

2023e

2024e

2025e

Year end 28 February

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

117.7

83.7

101.3

151.7

153.1

157.7

EBITDA

 

 

14.4

11.4

13.5

23.6

21.5

22.7

Normalised operating profit

 

 

11.0

7.7

10.1

20.1

18.0

19.2

Exceptionals

(3.8)

(1.5)

(0.3)

0.0

0.0

0.0

Other

0.7

0.0

0.0

0.0

0.0

0.0

Reported operating profit

7.9

6.2

9.7

20.1

18.0

19.2

Net Interest

(1.4)

(1.1)

(1.2)

(1.0)

(0.5)

(0.3)

Joint ventures & associates (post tax)

(0.3)

0.0

(0.0)

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

9.4

6.7

8.9

19.2

17.5

18.9

Profit Before Tax (reported)

 

 

6.3

5.1

8.5

19.2

17.5

18.9

Reported tax

0.0

(1.6)

(1.8)

(4.2)

(4.4)

(4.7)

Profit After Tax (norm)

9.4

5.1

7.0

15.0

13.1

14.2

Profit After Tax (reported)

6.3

3.6

6.7

15.0

13.1

14.2

Discontinued operations

(2.3)

1.0

7.2

0.0

0.0

0.0

Net income (normalised)

9.4

5.1

7.0

15.0

13.1

14.2

Net income (reported)

4.0

4.5

13.9

15.0

13.1

14.2

Basic average number of shares outstanding (m)

31

31

31

33

33

33

EPS – basic normalised (p)

 

 

30.19

16.23

23.06

45.93

39.91

42.91

EPS – diluted normalised (p)

 

 

27.28

13.43

18.79

37.9

32.99

35.49

EPS – basic reported (p)

 

 

12.88

14.45

45.56

45.93

39.91

42.91

Dividend (p)

5.00

5.00

9.00

12.00

13.50

14.00

Revenue growth (%)

(-0.2)

(-28.9)

21.0

49.7

0.9

0.0

EBITDA Margin (%)

12.3

13.6

13.4

15.6

14.1

14.4

Normalised Operating Margin (%)

9.4

9.2

9.9

13.3

11.8

12.2

BALANCE SHEET

Fixed Assets

 

 

114.7

106.6

99.8

97.3

94.7

92.2

Intangible Assets

86.2

86.1

80.9

81.1

81.4

81.6

Tangible Assets

11.9

9.8

7.1

4.3

1.5

(1.3)

Investments & other

16.5

10.7

11.9

11.9

11.9

11.9

Current Assets

 

 

68.3

51.7

52.8

85.0

93.9

103.2

Debtors

39.5

34.8

38.8

54.8

57.8

59.9

Cash & cash equivalents

28.7

16.4

14.0

30.3

36.2

43.3

Other

0.0

0.4

0.0

0.0

0.0

0.0

Current Liabilities

 

 

78.9

51.9

42.8

66.2

69.1

71.9

Creditors

47.6

45.6

39.3

59.8

61.9

63.8

Tax and social security

1.3

1.3

1.6

4.0

4.1

4.5

Short term borrowings

25.1

0.0

0.0

0.3

0.6

0.9

Other

4.8

4.9

1.9

2.2

2.5

2.8

Long Term Liabilities

 

 

44.9

39.9

34.8

34.8

34.8

34.8

Long term borrowings

2.6

2.7

2.8

2.8

2.8

2.8

Other long term liabilities

42.2

37.3

32.0

32.0

32.0

32.0

Net Assets

 

 

59.2

66.5

75.1

81.3

84.8

88.8

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

59.2

66.5

75.1

81.3

84.8

88.8

CASH FLOW

Op Cash Flow before WC and tax

9.7

8.8

12.0

22.7

21.0

22.4

Working capital

(0.4)

4.1

5.2

4.8

(0.6)

(0.0)

Exceptional & other

0.0

0.0

0.0

0.0

0.0

1.0

Tax

1.2

(0.8)

(2.2)

(1.8)

(4.2)

(4.4)

Other

1.4

1.8

6.2

0.6

0.2

(0.0)

Net operating cash flow

 

 

11.8

13.9

21.3

26.2

16.4

18.9

Capex

(1.7)

(1.1)

(1.2)

(1.3)

(1.3)

(1.3)

Acquisitions/disposals

(6.3)

3.7

(8.1)

1.3

1.3

1.3

Net interest

(1.5)

(1.2)

(0.8)

(1.0)

(0.5)

(0.3)

Equity financing

3.9

(28.9)

(2.5)

(2.5)

(2.5)

(2.5)

Dividends

(4.6)

0.6

(2.1)

(2.9)

(3.9)

(4.4)

Other

0.0

(0.9)

(7.0)

(3.5)

(3.5)

(3.5)

Net Cash Flow

1.6

(13.9)

(0.5)

16.3

5.9

8.1

Opening net debt/(cash)

 

 

11.7

20.0

8.8

9.3

(7.0)

(12.8)

FX

(0.8)

(0.7)

0.3

0.0

0.0

0.0

Other non-cash movements

(9.0)

25.8

(0.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

20.0

8.8

9.3

(7.0)

(12.8)

(20.9)

Source: Braemar Shipping Services, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Braemar Shipping Services and prepared and issued by Edison, in consideration of a fee payable by Braemar Shipping Services. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Braemar Shipping Services and prepared and issued by Edison, in consideration of a fee payable by Braemar Shipping Services. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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