A profit warning from economic bellwether Braemar Shipping Services (BMS) has caused investors to jump ship as lower activity and pricing in the tanker market hit revenue.

Chief executive officer (CEO) James Kidwell now says trading performance in the year to 28 February 2017 will be materially below the same period last year and outlined a range of cost-cutting measures.

Braemar's warning follows a similar update from sector peer Clarkson, which said in July industry conditions were challenging.

House broker Stockdale Securities cut full year 2017 pre-tax profit expectations from £13.7 million to £8.7 million on the back of the comments.


'Clearly this update represents a material setback,' writes Stockdale analyst Peter Ashworth.

'The factors that have contributed to it are consistent with the challenging conditions in the various shipping markets the group serves. The necessary action to restructure the business has been taken. The cost savings and reductions are anticipated to ensure a recovery in profitability in 2018 and 2019.'

Ashworth adds a weaker sterling against the US dollar will benefit Braemar's earnings though the full benefit will not materialise until the next financial year due to a rolling hedging policy.

Performance was worse than expected in two of Braemar's three key operating units, according to CEO Kidwell.

Weaker activity and rates in tanker markets hit performance in Braemar's Shipbroking unit with weak demand and oversupply impacting performance.

Braemar's Technical division is exposed to a slowdown in oil and gas exploration and development activity. The final unit, Logistics, which helps producers of goods to ship their products, traded in-line with expectations.

Braemar is planning senior management changes and cost reduction measures, most of which will impact first half results, to address weaker revenue.

CEO Kidwell says he remains confident in the longer-term outlook, highlighting a strong balance sheet and substantial forward order book. Braemar boasted a cash balance of £9.2 million at its last year-end, the year to 29 February 2016.

Braemar is currently trading 9.1% lower at 369p, valuing the business at £111 million.

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Issue Date: 30 Aug 2016