Clarkson sails seas of recovery

Ahead of the financial crisis, orders rolled in at shipbuilders from customers giddy on a cocktail of cheap-and-easy finance and optimistic forecasts. However, the long lead time on ship orders meant large numbers of new vessels were still being completed well into the great recession, exacerbating the impact of the drop-off in global trade on the shipping industry. Further woe was heaped on the sector by the collapse in commodity prices in 2015, which had its own knock-on effect for shipping rates.

Despite all this, Clarkson has used its position as a market leader, along with the support of a strong balance sheet, to continue to win work and invest in its business. The aplomb with which it has navigated the treacherous conditions is reflected in its record of 15 years of dividend increases, which has taken the payout from 15p a share in 2002 to 73p last year. That’s equivalent to a compound annual growth rate of 11.1 per cent through the period. Clarkson has also invested during recent tough times to make sure all its businesses are best-in-class, and we think this should now be set to really pay off.

Several important indicators suggest a recovery in the market since its low point in 2016. Indeed, given shipping accounts for about 85 per cent of global trade, and the world is going through a rare period of synchronised growth, it should not be a surprise that things are perking up. The amount of trade in tonnes done by sea in 2017 was up 3.9 per cent, while tonnes by miles improved by 5 per cent. The Baltic Dry Index, an important industry barometer that measures the amount of dry cargo shipped globally, rose 42 per cent last year. Clarkson’s own ClarkSea Index, which measures earnings for most of the main vessels in bulk shipping, was 14 per cent higher. What’s more, the rise in demand for vessels is happening at a time when new supply looks thin. New-build orders hit a historic low in 2016 of 231 compared with a 2007 peak of 2,905.

While Clarkson’s own order visibility for 2018 is poor – continuing a trend from last year – prospects are clearly encouraging. Demand for Clarkson’s services may also be boosted by industry regulation, especially around fuel. What’s more, 2018 trading will come off a solid performance last year. In the year to the end of 2017, sales rose 6 per cent to £324m while underlying pre-tax profits improved by 12 per cent to £50.2m. The group benefited from industries in China putting more focus on manufacturing, along with expansion in the US, Japan and parts of Europe – this was essentially a continuation of good news from the first half and illustrates the benefit of Clarkson’s geographic diversity. The broking division, the largest business by far as a proportion of revenue, saw sales increase by 2 per cent to £239m (74 per cent of the total) with a 9 per cent increase in underlying profit to £43.9m (72 per cent of the total).

Importantly, Clarkson continues to invest in technology that should help distinguish it from rivals, broaden its offer to customers and help it retain talented staff. The company sees particular promise in the increased use of the Clarkson's Cloud both in-house and by external clients to help run their shipping services. Its vessel tracking system, SeaNet, and operations platform Gateway both also did well internally and externally. There are hopes the group will be able to find ways to generate new revenues from these services as customers become more reliant on them.