Clarkson lauds 20th consecutive annual dividend increase

Shipbroker Clarkson (CKN) stayed on course through “turbulent” waters last year, as the shipping industry dealt with ongoing lockdowns, port congestion and the additional complexity caused by Russia’s invasion of Ukraine. 

Clarkson’s 45 per cent increase in pre-tax profit was 3 per cent higher than house broker Liberum’s forecast and despite ongoing uncertainty in the market – especially in containerships – the company upped its dividend for the 20th consecutive year by 11 per cent to 93p. Its forward order book also looks healthy, up around 30 per cent at $216mn (£180mn).

Performance was driven by its core shipbroking arm, whose segmental profit rose by 60 per cent to £118mn. Profits in its financial arm fell by 41 per cent to £7.8mn, though, as greater economic uncertainty meant that fewer funding deals were done. It expects deals that were delayed in the second half of last year to complete early this year, though, and said the withdrawal of many large banks from this space meant there was “pent-up demand” from shippers to raise capital.

The shipping industry is notoriously cyclical, and Clarkson’s shares fell by around 17 per cent last year as investors grew concerned that tougher times may be ahead for the industry after a couple of years of excess profits. 

There are certainly signs of this in the containership market, where additional capacity has severely depressed rates – in the year to 1 March, global spot rates were down 80 per cent, according to data provider Freightos. Demand for bulk cargo vessels has also softened, with rates down 23 per cent last year. The market for tankers remains tight, though, with Clarksons’ average tanker earnings index increasing five-fold last year to $40,766 per day – the highest since the last commodities supercycle was in full flow in 2008. 

Moreover, Clarkson chief executive Andi Case argues that tighter environmental regulations is spurring more activity as shipowners retire older vessels earlier in favour of models that can run on alternative fuels. For larger vessels handling commodities, fleets are at their oldest level for more than a decade, the company said.

The issue, of course, is around timing and how long it will take for shipowners to make the necessary investments.

But given Clarkson’s strong forward order book, its healthy balance sheet and a relatively cheap valuation of 14 times Liberum’s forecast earnings (compared with a five-year average of more than 20 times) we stick with our buy call.

Last IC View: Buy, 3,380p, 08 Aug 2022