Braemar – these shares offer a handsome 8.1% yield and a progressive upside potential
A failed diversification strategy and a subsequent change of management and restructuring could well prove to have been highly impactive for this group.
Today Braemar Shipping Services (LON:BMS) is one of the leading providers internationally of shipbroking, financial advisory, logistics and engineering services, specifically targeted at the shipping and energy sectors.
The group, capitalised at just under £60m, employs some 530 people in 30 locations across the world.
The shipbroking division, which now makes up 80% of group profits, is one of the largest chartering and sale and purchase shipbroking companies in the world. Its Braemar ACM Shipbroking subsidiary, which has few rivals, offers globally its services in spot and period chartering, derivatives brokerage, sale and purchase, as well as research.
The group’s financial division, which is sold very much in line with its shipbroking offer, is now established as a leading financial advisor in the maritime sector globally.
Braemar Corporate Finance, with its offices in Hamburg, London and Singapore, offers its solutions to ship owners, institutional investors and lenders. Its support takes in transactions and capital raisings, restructurings, asset and loan management as well as insolvency procedures.
On the engineering front the group’s Braemar Wavespec Services division provides expert engineering and technical advisory services related to facilities and ships to the oil, gas and shipping sectors.
For logistics the group’s Cory Brothers Shipping Agency operations across the globe offers port agency, liner services, land services, logistics and specialist services. This 170-year old company has a network of offices and trusted partners providing safe, reliable and timely transport at anytime, anywhere in the world.
The group also owns a 27% equity stake in Aqualis Braemar, which provides adjusting and marine surveys, offshore energy marine warranty services, expert witness and consultancy, and also salvage and wreck removal.
Effectively Braemar can offer everything you want in the shipping sector.
The group has some 31,632,079 shares issued. Significant shareholders include: Hargreaves Lansdown Asset Management (6.40%), Chelverton Asset Management (6.10%), Horizon Kinetics Asset Management (5.05%), Hargreaves Lansdown Stockbrokers (4.84%), Downing (4.39%), Barclays Private Banking (4.24%), FIL Investment Advisors (3.93%), Alliance Trust Private Banking (3.76%), and Unicorn Asset Management (3.63%).
Quentin B Soanes, who is Chairman of Sterling Shipping Services, also owns 4.09% of the equity.
For the full year to end February 2019 the underlying divisional split was as follows: Shipbroking £75.7m revenue and £9.3m profits; Financial £7m and £2.1m; Logistics £32.1m and £0.8m; Engineering £3.1m and a £0.3m loss. Central costs were £2.8m.
The latest interim results showed very little change overall, while underneath the various costs of disposing of its previous technical services interests and restructuring have been largely covered.
The company reported that the shipbroking markets were buoyant currently, the financial side was seeing high activity levels with variable timing on its rewards, logistics is showing benefits of its restructuring with renewed contracts, and finally on the engineering side it appears that the LNG markets are offering future opportunities.
For the 2020 February figures a small rise in turnover to £122m is estimated, with adjusted pre-tax profits of £9.3m, worth 22p in earnings and 15p in dividend per share.
Going forward a year group turnover could rise to £124.5m, profits could go up to £10.2m, earnings come out at 24p and an unchanged dividend of 15p per share.
The February 2022 year end could see £128m revenue, producing £11m pre-tax, earnings of 26p and again an unchanged 15p per share in dividend.
On the face of it Braemar does not set the world alight, however, with its shares currently trading at around the 185p level, I consider that they are substantially undervalued when compared to its nearest peer, namely Clarkson.
Yielding a very handsome 8.1%, the shares offer sound upside potential when investors realise the work that has gone on with new management now in charge.
I set a Target Price of 250p before the end of next year.