Thursday 25 April 2013

Portfolio Buy: Braemar Shipping Service (LSE:BMS)

Changing course?
2013 is turning out to be an exceptionally busy time for the DIY Income Investor portfolio - which is quite out of character for this investing style. But there is spare cash sitting in the various investment accounts, which should be working hard.

This new purchase may represent a move in a new direction in the portfolio strategy - towards Small Caps (i.e. companies with relatively small share capitalisations) traded on the London Stock Exchange. This part of the market has some interesting high-yield dividend companies that I will be looking at over the coming months.

Braemar Shipping Services plc is an international provider of shipping, marine and energy services. Having worked previously in the shipping and ports industries, this company caught my eye and its activities are familiar. It has an international spread of businesses that fits my current move towards more geographic and currency diversification.

Small Caps have performed very well as a group in the last couple of years. I have held a few in the past (I continue to hold high-yield Chesnara - as well as a sickly Centaur Media)  My current thinking is that a shift from fully-valued fixed-income securities into Small Caps may be the next move to make.

Its Interim Management Statement issued in January 2013 paints a picture of a company that is in a holding pattern:
  • its Shipbrokering business is facing a difficult time, wallowing in an inactive spot market
  • Braemar Technical Services is 'in line', providing services world-wide to the energy, shipping and insurance sectors in surveying, loss adjusting and engineering
  • Cory Brothers - its logistics business - is performing 'in-line'
  • Revenue from Environmental Services is declining faster than expected

The Interim Report for 2012 gives more background.

You can also find analyst reports on Braemar's Investor Relations page. For example, Arbuthnot (which rate the share as 'neutral') noted: "The principal risks to our recommendation are deterioration in the global economy and the adverse impact that would have on global seaborne trade, and continued weak shipping rates. Further, a continued weak US dollar would have a negative impact on financial estimates and the group's valuation."

So, although the dividend has been retained at the previous year's level - a current yield of around 6.8% (one of the highest for the Small Caps), the dividend cover is only 1.5 (about the lowest you would want to go, for most income investors). The p/e ratio is just under 10 - so fairly modestly valued.

Overall, there is a risk of a dividend cut if the situation does not improve. No high yield is without risk! 

But the juicy dividend is worth a bit of faith, surely?

[Purchare price: £3.95] 

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Please buy a few more - I'm nearly back to break even! ;-)

    Having held BMS for some time, they appear to just about be holding their own in difficult times. Providing they can maintain this into the future, I'm happy to sit on these for the yield alone. At some point in the future, the global economy will improve and then there should be the prospect of a good capital gain too.

  2. Are you not tempted to use a small cap fund like Aberforth (ASL) to get exposure to small cap income?

    I invest directly in small caps, but for a HYP style income portfolio I'd prefer diversification for security and steady income I have to admit. (I'd want at least 20-30 small caps for the latter, if investing directly).

    Just my tuppence. :)

  3. I appreciate with Monevator's question regarding shipping services..