Braemar sails to higher profits

It was no surprise that dollar strength has had a lasting positive impact for shipping services company Braemar Shipping (BMS), as was already clear at the time of the full-year results. However, in addition, investors have noticed that the bedding-in process for new acquisitions now seems to be complete, after a long review period that involved significant restatements, and that these are now contributing materially to the company’s bottom line.  

Forex benefits still played their part, with positive rates adding roughly 10 per cent to Braemar’s revenue increase for the half. What was more interesting was that sales grew organically by 36 per cent as demand began to recover, demonstrating beyond doubt that the company’s business model achieves a high rate of operational gearing in the right circumstances. For example, chartering put in the best performance with profits more than doubling to £6.9mn, on sales of £44.9mn, which were 70 per cent higher. It also helped that the long process to bed in and reassess the 2017 acquisition of German ship finance company Naves, which has caused Braemar no end of trouble, is now complete, with management also reaffirming its long-term forecast that profits will double by 2024.      

It has always been the case with Braemar that its careful management of resources when times are hard allows it to benefit when buoyancy returns to the shipping market, and the balance sheet looks very sturdy. Also, it now has a more diversified presence across the broking market, instead of shipping services alone. Research house Edison’s earnings forecasts give Braemar a forward price/earnings ratio of 8 for 2023. That looks undemanding given that profits are on an upward curve. Hold.

Last IC view: Hold, 334p, 30 Aug 2022