Uncertainty over future results from Braemar Shipping Services’ finance business and rising debt levels have contributed to a downgrade from Cantor Fitzgerald.
Analyst Robin Byde has cut the London-listed company from buy to hold suggesting changes at the group have increased growth potential but potentially introduced lumpier earnings.
It follows an active period for Braemar which saw what the analyst termed solid full-year results in May and the sale of much of its technical business to Aqualis in exchange for a major equity stake in the Oslo-listed company.
Byde said Braemar had made significant progress in reducing exposure to the technical space and re-positioning its shipbroking and financial businesses.
“Build-out of Financial has progressed well but results are becoming more success fee based and this adds uncertainty, particularly in the current capital markets environment,” Byde said in a report today.
“Debt has increased with acquisition costs and this will reduce cash available for dividends.
"We think the new Shipbroking-Financials combination is taking shape, but is still work-in-progress.
“How this vessel rides the whitecap waves in the next few quarters is uncertain,” Byde added.
Cantor forecasts an operating profit of £9.3m for Braemar in fiscal 2020, up from £9.1m in 2019.
Further increases are projected in 2021 and 2022, with operating profit of £10.1m and £11m projected respectively.
Boyde said shipbroking business Braemar ACM was now better balanced between tankers and dry, sale and purchase and derivatives.
“The unit we are least convinced about is Financial,” he added, noting it retained a healthy near-term pipeline.
“It now has a longer customer list but more of its revenue is transaction and success fee based.
“The nature of its recent transactions appear to us more mainstream and therefore subject to greater competition.”
Braemar has seen its debt rise from £2.4m at the end of the 2018 financial year to £7.8m today.
“Given higher debt and a more uncertain earnings outlook, we are significantly more cautious on the level of the dividend,” Boyde said.
Braemar stock was trading at £1.80 each at the close in London yesterday, off a year high of £2.80 and a low of £1.60.
