Traditional Shipping And Hospitality Will Suffer Rising Costs

Key Takeaways

• Structural shifts toward remote work, alternative lodging, and digital platforms threaten Braemar's core business, limiting growth and challenging its ability to maintain pricing power.
  
• Elevated costs from wage pressures, regulatory demands, and tighter credit are likely to suppress margins and profitability, despite potential operational efficiencies.
  
• Successful diversification, strategic investments, and industry consolidation position Braemar for stable growth, improved margins, and increased market share with reduced reliance on cyclical revenue streams.

Catalysts

Provides shipbroking services in the United Kingdom, Singapore, Australia, Switzerland, the United States, Germany, and internationally.

• The global acceleration of remote work, shifts in business travel patterns, and the rise in popularity of alternative accommodation options such as Airbnb and short-term rental platforms are expected to structurally decrease demand for traditional shipbroking and logistics-intensive hospitality services. This will likely apply consistent pressure on Braemar's core revenue streams and limit long-term revenue growth.
  
• Persistent increases in interest rates and ongoing tightening of credit markets are expected to continue over the coming years, raising Braemar's debt servicing costs and constraining its access to expansion capital. This dynamic will likely drive down net margins as interest expenses rise, especially given Braemar's history of a net debt position around fiscal year end.
  
• Heavy reliance on cyclical luxury and upper-upscale shipping segments exposes Braemar to significant earnings volatility during periods of global economic slowdown, reduced goods movement, or declines in discretionary travel. Any prolonged weakness in tanker or dry cargo rates, such as those experienced in the most recent fiscal period, will heighten the risk of further top-line contractions and compressed operating profit.
  
• Ongoing wage inflation, labor shortages, and higher compliance costs associated with a more regulated environment are expected to result in structurally elevated operating costs for Braemar. This could prevent the company from achieving its long-term margin expansion targets and could erode return on equity, regardless of technological investments or scale efficiencies.
  
• The proliferation of technology-driven loyalty programs and direct-to-consumer booking platforms by larger, diversified global players is likely to marginalize smaller or more niche operators such as Braemar. This intensifying competition is expected to make it increasingly difficult for Braemar to attract and retain high-value customers, exerting pressure on both occupancy and pricing power, which could drag on earnings and market share in the years ahead.

Braemar Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Braemar compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Braemar's revenue will grow by 1.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.3% today to 7.4% in 3 years time.
• The bearish analysts expect earnings to reach £10.9 million (and earnings per share of £0.28) by about August 2028, up from £6.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.0x on those 2028 earnings, down from 12.6x today. This future PE is lower than the current PE for the GB Infrastructure industry at 8.3x.
• Analysts expect the number of shares outstanding to decline by 1.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.09%, as per the Simply Wall St company report.

Braemar Future Earnings Per Share Growth

Risks

• Braemar has demonstrated robust long-term growth, with revenue up 70% and underlying operating profit up 88% since FY '21 due to a successful diversification strategy, making future declines in revenue or profit less likely.
  
• The company's strong and growing forward order book, currently at $82.2 million, alongside targets to reach £200 million in revenue by FY '30, indicates an expanding pipeline of business that could boost top-line revenue in the coming years.
  
• Diversification into non-cyclical segments such as Risk Advisory, which has grown from £7.5 million in revenue in FY '21 to £22.3 million in FY '25, provides more stable earnings and reduces reliance on volatile shipping markets, potentially supporting net margins and profit stability.
  
• Strategic investments in technology, operational excellence, and the establishment of an organized trading facility provide a platform for scalable growth and improved operating leverage, supporting a margin target increase to 15% by FY '30 and meaning operational efficiency gains could drive higher net margins.
  
• Ongoing industry consolidation, driven by regulatory pressures on smaller competitors and Braemar's built-out infrastructure and compliance capabilities, creates significant acquisition opportunities that could accelerate earnings growth, enhance market share, and support share price appreciation.

Valuation

• The assumed bearish price target for Braemar is £2.3, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Braemar's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.62, and the most bearish reporting a price target of just £2.3.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £147.7 million, earnings will come to £10.9 million, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of £2.51, the bearish analyst price target of £2.3 is 9.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.