In so far as we have had interim results from Clarkson (CKN) the international shipping services group. These are the first results since they competed the acquisition of RS Platou another shipping broker and investment bank which was a good fit with their own operations. I first wrote about this one and the deal back in March when the shares were trading around the 2000p level. You can click the link above if you want to read more about the background to the deal etc.
Any way in today's results, in brief, the turnover and profits are up substantially being boosted by the effects of the acquisition, however the earnings are actually down by 12.7% presumably as a result of the extra shares issued to finance it. They also make reference to the difficult market conditions faced by many of their markets although they suggest this is both a threat and an opportunity for them. They did however warn at their AGM and also reiterated here that as a result they expect their results to be more weighted towards the second half this year.
That always concerns me as it then leaves a Company in this situation with a lot to do and they are then potentially a hostage to fortune if other unexpected developments take place. We have already seen some downgrades to what look like punchy forecasts for this year with expected eps coming down from 158p to about 152p since June which still suggests growth in the mid teens despite the set back at the interims today. I note also that the dividend is forecast to be ramped up by over 20% to 72.7p which seems a bit aggressive in the context of today's modest 1p (4.76%) increase in the interim to 22p. This also looks odd in the context of their historic growth rate of 7% in the dividend in the last few years, unless they promised this as part of the deal or have indicated a 2x cover policy that I'm not aware of. Nevertheless given the statement and the current market conditions I reckon the risks to the earnings and the dividend growth may be on the downside from here.
Ahead of any changes post the deal the shares, which have moved on up a little since I suggested shipping out when I sold them in June, are now trading at the top end of their price and rating range. Thus at 2750p they were trading on 18x with a 2.64% yield according to Stockopedia, which looks full to me given the risks to forecasts and the possibility of a second half profits warning if things don't come through as they expect. Thus while it is obviously a good and well managed group, they do face some headwinds and look fully valued to me. So if you are still in them I would suggest it is time to disembark and I note Mr. Market has also seen fit to mark them down by 4 to 5% this morning to about 2620p.
.. and going shopping in the market fallout. In this case I'm suggesting exiting Clarkson (CKN) the shipping broking and services company that I featured in my Christmas Cracker series back in December when it was around 1900p and when I wrote it up back in March this year when it was around 2000p to 2100p. Back then I felt that the gap on the chart at around 2400p could have been a good mid range target, while the higher rating it had traded on in the last year also suggested possible upside as they on boarded their RS Platou acquisition which was the other significant feature at that time.
As you can see from the chart below the shares have done quite well since then, despite the recent falls in the broader market. Consequently they are now getting over bought and extended versus the 200 day moving average and are also approaching their previous highs in both share price and rating terms as they now trade on around 16.2x with a 2.85% yield at 2600p.
So in conclusion, while it is a well managed group and they are still expected to do well operationally this year, much of the good news now seems to be factored into the price, although there could be a little more upside if the rating can reach its previous highs or if it were to re-rate further. However, given the falls in the market recently I preferred to lock in profits up here and go in search of other more attractive buying opportunities which might be washed up by the current volatility in the stock market.
...we have had final results from Clarkson (CKN) which is a £600 million market cap. United Kingdom-based provider of integrated shipping services group which operates from offices in 20 countries on six continents.
The results seem to be ahead a the earnings level coming in at 134.2p v 127p consensus forecast according to Stockopedia. The dividend was however slightly shy at 60p for the year v a 61p forecast form the same source, although it was up by a reasonable 7% and is well covered by earnings and cash flow. Encouragingly this was slightly ahead of the 6% or so that they have achieved over the last 5 years and the Company points out that they have increased their dividend consecutively, as part of their progressive policy, for the last 12 years.
The other main feature of the year was their acquisition of of RS Platou ASA (Platou) a leading international broker and investment bank, focused on the offshore and shipping markets which completed in February this year. This is covered in detail in today's announcement in which they said it:
"not only brings together two great teams, but transforms the strength and depth of our offering and further enhances the best in class service we deliver to our global clients. The board firmly believes this is a unique opportunity to combine two leading businesses, led by proven and experienced management teams, to create a 'best in class' fully integrated offer across shipping and offshore, broking and banking. The businesses are highly complementary with little overlap and we expect to generate significant opportunities for organic revenue and margin growth, creating shareholder value over the medium-term."
They do however acknowledge that they face extremely challenging conditions in some markets but they seem confident that they should benefit from their leading positions and extra services they can offer to clients as a result of the acquisition. The Mr market seem to like it as he has marked the shares up by 4 to 5% this morning.
Summary & Conclusion
A slightly difficult one to get your head around given the difficult background to some of the markets that they serve. However, there are several attractive aspects like a market leading position, strong balance sheet (net cash of £92.3m), a well covered and steadily growing dividend and potential benefits to come from what seems like a good acquisition.
The shares trade on around 12 to 13x 2015 forecast earnings and sport a yield of 3.6% at a share price of 2100 pence, if they achieve the currently forecast 73 pence dividend for 2015. At this share price they also have a current earnings yield of 6.7% which is about average and It scores in the top decile of the Compound Income Scores with a score of 94.
So it seems like a well managed business operating in a slightly difficult market which can be cyclical. Despite this they have been able to and seem confident in growing the dividend going forward. The rating seems about average and may be fair enough, so it probably looks like a strong hold rather than a raging buy.
However they do seem to have found some support at the 1900p level since the end of last year (see chart below) and there is also a gap at around 2400p which might be a good technical mid range target in the medium term perhaps, which would put it on 15x and a 3% yield for this year. Talking of which I also note that in the last 12 months the PE range based on this years forecasts has been roughly 12 to 17.5x and the yield 2.65% to 4%, so I guess there could be some upside to the rating on that basis as the acquisition beds down and if the Baltic Dry Index were to recover from its recent long term lows as this is seen as a key indicator for shipping and global trade. But I'll leave you to decide for yourself if you want to get on board this one or not.