Hot Features
Premium
Register for real-time alerts, custom portfolio, and market movers
Braemar Shipping Services (LSE:BMS) is having a hard time in some of its business areas resulting in lowered profits. For example, it offers consultancy to oil and gas explorers, who are not doing much exploration these days.
The slump in profits does not mean it has fallen into losses. Indeed, it has an impressive record of high profits in each of the last ten years. But Mr Market is currently concerned about the hard-hit interims to August 2016 and the profit warning in January 2017 which both pointed to hard times (but still profitable).
As a result, the share price has halved from over £5 to £2.60 over two years. Average earnings per share over the decade are over 35.5p and so the cyclically adjusted price earnings ratio, CAPE, is way below the UK market average of 15.
Shipping and offshore work is a classic example of a cyclical business, or at least one that has booms and busts (if not neat cycles). We are currently in a bust. Eventually a boom will come.
We need more than a low CAPE
But we must be reasonably sure that Braemar will be still be alive to take advantage of the next boom. Thus I’ve investigated the level of financial distress it is experiencing in the downturn, using Joseph Piotroski’s nine factors. I’m not concerned. After all, the company has net cash rather than net debt, is profitable and produces positive cash flow.
Business prospects on the medium and long view seem fine, especially in light of worldwide industry recognition of Braemar’s capability as one of the top shipbrokers and shipping consultants.
The management team seem experienced, capable and, in the absence of contradictory evidence, I assume are shareholder wealth oriented.
While individual operating business units can be volatile, Braemar has a half-dozen or so brands and dozens of business operations ranging from ship-to-ship transfer of cargo in Singapore to brokering the hiring of oil tankers in London.
So even if some of the business areas are in a slump the extent of the company’s diversification makes it more stable than any one of its underlying markets on its own.
With little or no debt I’m not concerned about its stability with regard to financial structure.
Today I’ll examine its earnings over ten years and calculate cyclically adjusted price earnings ratio.
In later Newsletters I’ll explain the three business areas, examine its financial distress vulnerability and discuss the managerial team.
Earnings per share
While looking at the table these numbers will be useful: current share price 254p – 260p; market capitalisation £78.5m (30.2m shares x £2.60p)……………………………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
