The market likes today’s full-year results from Braemar Shipping Services (LSE: BMS) and the stock is up almost 6% as I write. The figures are good from the international provider of broking, financial, consultancy, technical and logistics services to the shipping, marine, energy, offshore and insurance industries. Although revenue was flat compared to the year before, underlying operating profit and underlying earnings per share both increased more than 90%. The directors pushed up the full-year dividend by just over 7%.
The Technical division “returned to profitability” in the second half and the September-acquired financial services business NAVES delivered a financial performance “ahead of expectations.” There should be more good news on profits from this new financial division once it has made a full year’s contribution to the business and because of success developing its advisory business.
However, the company operates in a cyclical sector. Within the shipbroking division, tanker freight rates are low. Nevertheless, the order book increased by 13% during the year. Looking forward, chairman David Moorhouse said in today’s report that he expects world trade and global shipping demand to continue to grow “in line with economic growth projections.” Yet he thinks it’s unlikely there’ll be a recovery in tanker rates before next year because of the growth of the tanker fleet. Meanwhile, the dry bulk market has been recovering, which he expects to continue.
A reasonable valuation
City analysts following Braemar expect earnings to increase around 22% in the year to February 2019 and 2% the year after. Despite those positive predictions, the valuation remains modest. At today’s share price close to 270p, the forward price-to-earnings ratio for the year to February 2020 is just above 10 and the forward dividend yield runs close to 6.3%. Forward earnings should cover the payment a little over one-and-a-half times.
I reckon the dividend looks attractive, and worth collecting, while we wait for the sector to cycle up again. At the end of 2013, Braemar’s share touched 550p or so, suggesting a potential gain of more than 100% from today’s levels just to get back to where it was before. On top of that, we can layer expectations for the firm’s strategic progress, such as gains from the NAVES acquisition.
The ultimate bubble indicator
I’d rather take my chances with Braemar Shipping Services than by piling into the cryptocurrency casino. You may make a killing by loading up with bitcoin or its peers, but you could lose your shirt too. The underlying fundamentals driving the movements of the likes of bitcoin are minor and it surges or falls mainly on the whims of mass speculation, as far as I can see.
I need no further proof that bitcoin and other cryptocurrencies are in a bubble than the fact that people have been chatting about them on Facebook. People with no apparent investing experience or interest in financial markets are punting on bitcoin. But there’s no dividend, no underlying driver, such as profits, and no basis upon which we can attempt to forecast. This isn’t going to end well for many, I suspect. I’d rather collect Braemar’s chunky dividend and wait to see how the business develops.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.