Clarkson sails to a record performance

Shipbroker Clarkson (CKN) rode the wave of the recovery in shipping markets across 2021, as supply-demand constraints buoyed freight rates and more active capital markets boosted investment banking sales. Revenue climbed by a quarter, with growth across all its business divisions, and the results confirmed the19th consecutive annual increase in the dividend.

Shipping rates enjoyed a vigorous 2021 after struggling over the previous decade. Management noted that rates, as well as asset prices, were helped by “the shortening in supply of ships”. This looks set to continue, with demand for commodities remaining high and the supply of new ships constrained by pandemic-related capacity issues. Overall, forecasts for rates “remain positive”.  

Broking across the major shipping markets, from containers to liquified natural gas (LNG), is the main chunk of Clarkson’s business. Revenue for the division was up by a fifth to £340mn as containers, dry bulk, and sale and purchase performed well. Tanker markets struggled, however, with oil demand hit by travel restrictions.

The capital markets boom in the year bled through to these results. Financial revenues hit £56mn, up by 65 per cent, serving up a profit of £13mn and margin of 23.8 per cent. Clarkson's Platou Securities, the group’s investment banking arm, completed 40 “large” corporate finance deals which raised over $3.5bn (£2.6bn).

Clarkson’s smaller divisions, support and research, also made progress. Combined profit was up by £2.1mn to £9.4mn on the back of digital sales and rebounding demand. The port services unit saw revenue bounce back to pre-pandemic levels.  

In 2020, tough trading conditions resulted in a £61mn impairment of goodwill in relation to securities and offshore broking. The intangibles balance was untouched this time, which aided both the balance sheet and the bottom line.

Numis has the shares trading on 19 times forward earnings, below the five-year average of 22 times. The broker said this valuation looks attractive “in the context of our expectation of continued strong performance in 2022 and commercialisation of the Sea/ platform” – the group’s intriguing technology platform for managing freight transactions which management believes “will become so vital to the shipping industry” – and raised their 2022 profit before tax forecast by 12 per cent to equal this year's £69mn.

With a robust forward order book of $165mn, free cash flow of almost £100mn, and a market outlook that is conducive to growth we consider Clarkson to be a solid long-term play. Buy.

Last IC view: Buy, 3,395p, 09 Aug 2021