New OTFs Will Broaden Securities Operations In UK And Madrid

Key Takeaways

• Diversification across shipbroking and securities yields sustainable revenues, supporting revenue growth and financial stability amid market fluctuations.
  
• Strategic acquisitions and operational efficiencies could enhance growth prospects, improve profit margins, and drive future earnings.
  
• Geopolitical instability, reliance on long-term orders, and compliance risks could affect Braemar's revenue consistency, profitability, and margins amidst currency fluctuations.

Catalysts

Provides shipbroking services in the United Kingdom and internationally.

• Braemar's diversification strategy across shipbroking and securities is building a more balanced business model, enabling them to generate sustainable revenues and profits despite market fluctuations. This approach is expected to support revenue growth.
  
• The company has a strong forward order book, which has increased to £85 million by the end of September, signifying future revenue streams and financial stability.
  
• Braemar is actively looking at pipeline deals and acquisitions that enhance their growth prospects and align with their diversification strategy, potentially driving future earnings growth.
  
• The establishment of organized trading facilities (OTFs) in the U.K. and Madrid is expected to facilitate further growth in their securities business, positively impacting revenue.
  
• Focus on operational leverage and cost control is expected to improve operating profit margins into the low teens as the company achieves greater scale, contributing to earnings growth.

Braemar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Braemar's revenue will decrease by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 10.3% in 3 years time.
• Analysts expect earnings to reach £14.6 million (and earnings per share of £0.33) by about May 2028, up from £5.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 13.7x today. This future PE is greater than the current PE for the GB Infrastructure industry at 8.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.22%, as per the Simply Wall St company report.

Braemar Future Earnings Per Share Growth

Risks

• There are concerns about potential geopolitical instability, such as the impact of sanctions or increased tensions, which could lead to volatile shipping rates and impact revenue consistency.
  
• The company's reliance on long-term order books can be double-edged; while it secures future revenue, it can be risky if market conditions, such as demand for shipping or freight rates, deteriorate, affecting future earnings.
  
• The company's operating leverage is sensitive to changes in revenue, and while diversification reduces risks, a major downturn in any key sector or geography could impact net margins.
  
• Compliance and risk management issues, such as those noted in the FT article regarding Russian affiliations, could result in stricter regulatory oversight or reputational damage, negatively impacting revenue and profitability.
  
• Fluctuations in exchange rates, particularly the value of the U.S. dollar, could impact revenue given that the company earns in dollars but reports in GBP, potentially affecting operating profit margins.

Valuation

• The analysts have a consensus price target of £3.545 for Braemar based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.35, and the most bearish reporting a price target of just £2.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £141.7 million, earnings will come to £14.6 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 9.2%.
• Given the current share price of £2.25, the analyst price target of £3.54 is 36.5% higher.
• 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.