Braemar Shipping Services: Challenging Trading Climate
Edison | Aug 31, 2016 12:21AM ET
While disappointing, the tone of the Braemar Shipping Services Plc (LON:BRMS) trading update should come as no real surprise to markets, given the current trading climate. With a sound balance sheet and a cost-driven profit recovery expected next year, the dividend should be safe, underpinning the share price.
Estimates reduced
Trading conditions have been more challenging than we had expected in the current year. A slowdown in Shipbroking was always likely, but the extent of the reduction in both volumes and spot rates in the key deep-sea tanker market has been more severe than expected. Similarly, dry cargo volumes have recovered well, but the adverse impact of shipping overcapacity continues. Other broking desks are in line with earlier expectations, but we now believe that broking profits will be some 15% below our earlier estimates. The impact of the oil price has been even more severe in the Technical division; workloads related to exploration in SE Asia are well below expectations, while new LNG contracts anticipated for Braemar Engineering appear to have been deferred. Management has instigated a major cost-cutting programme, but divisional operating profits will probably be less than half those earned last year. On the other hand, Logistics is performing well and in line with expectations. Despite the weakness of sterling relative to US$, we are reducing our FY17 adjusted PBT estimate from £13.5m to £8.8m; interim results, to be announced on 25 October, will show a sharp profits shortfall.
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