Investment bank Liberum says a shake-out in the shipping market could prove to be a long-term positive for struggling shipbroker Clarkson (CKN).
Shares in Clarkson are up 7.1% to £21.79 after results published today showed the business is in decent shape despite key industry barometers plumbing record lows in the early part of 2016.
Tough industry conditions could even help Clarkson over the longer term if it is able to gain market share as competitors struggle, argues Liberum analyst Gerald Khoo.
‘Interim results showed a fall in profits, with tough shipping market conditions more than offsetting underlying strategic progress,’ writes Khoo.
‘A shakeout in the shipping market seems inevitable, to the group's eventual benefit, but timing remains uncertain. In the meantime, the group continues to build on its market-leading position in shipbroking.’
Khoo cites Clarkson’s unrivalled strength and breadth in the shipping market, in which it boasts number one or two market positions in all shipbroking segments, as well as superior margins and a balance sheet with a net cash position.
And one of the key risks Khoo highlights at Clarkson is a positive negative – that the business fails to pay out its already substantial cash pile to shareholders.
Another risk is tough industry conditions, which led to Clarkson issuing a profit warning in July. Clarkson’s index of shipping activity fell to the lowest level since 2009 during the first half of 2016 and the more widely-tracked Baltic Dry Index hit a record low on 11 February before rallying into June.
‘The results for the six months to June 2016 were consistent with recent trading updates, with a modest fall in profits as awful shipping market conditions outweighed the strategic progress made by the group,’ writes Khoo.
‘Full year profits are expected to follow a similar pattern, implying no material change to consensus.’
Only one analyst covered Clarkson prior to today’s update, according to Thomson Reuters data, house broker Panmure Gordon.
They forecast full-year sales of £298 million in the year to 31 December 2016, roughly flat on a year earlier.
Sales are expected to return to growth in 2017, according to the analyst’s estimates, up 7.1% to £318.9 million.
Earnings per share in 2016 is pitched at 100p a share, followed by 107p a share the year after.
Liberum is now Clarkson’s joint house broker alongside Panmure. Its newly-published forecasts are a little higher than Panmure’s.