Clarkson Group PLC (LON:CKN) edged higher in early deals after the shipping broker saw pre-tax profits jump by a quarter in the first half of the year amid signs of a recovery in major shipping markets.
The global economic uncertainty over the past year so led to the deterioration in freight rates while the weak oil prices of recent times have also led to reduced activity in offshore broking.
Shipbroking deal volumes picked up in the first half of 2017 which helped pre-tax profits to rise by 25% to £21.9mln (£17.5mln) on higher revenues of £156.8mln (£147.2mln).
As a result of the decent performance, Clarkson upped its interim dividend to 23p (H1 2016: 22p).
The group is on a sound financial footing as well. It has a “robust” balance sheet with £71.4mln of net funds and is debt-free after paying off its loan notes earlier this summer.
Not out of the water yet though
“We are pleased with our performance so far in 2017, increasing revenue and volumes in difficult shipping and offshore markets,” said chief executive Andi Case.
“As we see signs of a rebalancing across some of the shipping markets, we are optimistic in our ability to capitalise on the upturn in the markets when it occurs, whilst maintaining the strength of the underlying business.
“Nevertheless, in the short-term, low activity in the newbuilding market and a predominance of spot over longer-term period business continues to limit forward visibility of revenues.”
Broker trims estimates
City broker Liberum has trimmed its estimates for 2018 and 2019, although it has kept its forecast for the current year unchanged.
Analyst Gerald Khoo is looking for a pre-tax profit of £48.9mln this year. He expects the markets to pick up slightly over the next two years but not by as much as he initially expected.
He is now forecasting pre-tax profits of £56.4mln and £65mln in 2018 and 2019 respectively.
“Conditions improved in most shipping market segments [in the first half], but rates continue to bounce along the bottom compared with the long term history,” wrote Khoo in a note this morning.
“As a precaution, we believe it is appropriate to trim our estimates for 2018 and 2019.
“We still believe in the recovery potential of the main shipping market segments, but some additional caution on timing seems prudent.”
Shares added 1.6% to £26.84 in early deals on Monday.
--Updates for share price and broker comment--