Clarkson buoyant as markets rebound

After a decade-long slump in freight rates, Clarkson’s (CKN) ships have finally come in.

Alongside the “beginnings of economic recovery from the pandemic” is the evolving regulatory backdrop for emissions and their implications for shipowners, as well as a much-improved demand in the container market. Taken together, the shipbroker believes the demand-supply dynamic in its core market has finally turned positive.

“The outlook for the business is strong,” says chief executive Andi Case, although figures for the first half of 2021 already reflect this.

Although currency swings meant revenue in the core broking divisions contracted, higher prices in most shipping markets and an active second-hand market meant operating profits rose 3 per cent. Had the sterling-dollar rate remained constant, profits would have climbed a fifth.

Finance work is in rude health. Buoyant demand for project finance and capital markets services pushed the division to a £5.3m profit in the first half of 2021, compared with a £1.3m loss a year ago, and the deal pipeline is reportedly strong. Ancillary services such as research and customs clearance support also made positive contributions to the bottom line.

The tendency of commodity prices and shipping rates to swing sharply means the stock is generally more volatile that the broader UK equity market. But as an 18-year track record of consecutive dividend hikes implies, the long-term growth story has been strong: over five years, the stock has delivered an average total return of 14.3 per cent a year, versus 7.8 per cent from the FTSE All-Share.

Consensus forecasts for adjusted earnings are 131.5p per share in 2021 and 138.7p in 2022. Steady compounding and some excellent long-term drivers suggest the shares’ premium rating is warranted. Long-term buy.

Last IC View: Hold, 2,340p, 10 Aug 2020