Braemar (LSE:BMS) — HY26 Results

0:00 Good afternoon, and welcome to the BRAEMAR PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press set. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, James Gandhi. Good afternoon to you. Good afternoon, and thank you. Once again, thank you so much for joining us today. We really appreciate. Today, myself and Grant will talk you through the various slides and give you a full update on where we are in the first half of this year and about some of the shipping markets, etcetera, and basically talk to the strategic framework of the business we've been placed last last May, etcetera. So so thank you once again.

1:03 Okay. Okay. Right. First of all, I'd like to say it's been a it's definitely been a a first half of some challenging markets, but at the same time, I think we can prove and show to you today that the resilience of the business and the diversification of where BRAEMAR is today, we've been able to come through that first half, and we'll be very optimistic for the second half of the business going forward. On top of that, we announced unchanged for our FY 2026 numbers. A strong forward order book is still actually improving. As you can see later in the slides, we're now up to strengthening from where we were at the end of August and with further increase in September against what we would call geophysical upheavals in the first half, the tariffs, etcetera, but at the same time, the business has proved itself very it's guiding me very strong in that respect.

2:10 That's basically proving the fact that we've added many strings to our bow and the fact that our securities business has performed exceptionally well and a number of key hires we made within the business. Obviously you see that we've announced the fact that we've opened office in Africa and Cape Town. The U. K. OTF license is live now with the intention to get our EU OTF license application progressing very well. And of course, we applied for DFIC in Dubai for our financial markets. And apart from that, we're still very clear on where our objectives were in May last year about where we are looking for opportunities to actively, complement our present business. So thank you.

3:04 Thanks, James. Afternoon, everyone. I'll talk about the group's financial performance. So revenue at £63,900,000 for the first half was 16% lower than the previous period, and that was really driven by weaker chartering performance and particularly in tankers where we saw weaker rates and longer voyage times. Given the geopolitical upheaval, we saw vessels taking longer voyage times, which also led to fewer fixtures because there were fewer vessels available. In U. S. Dollars, revenue was $73,800,000 which is 13% lower. So we also suffered a bit from the weaker U. S. Dollar in the period. Underlying operating profit before acquisition related items was £5,600,000 29% lower than the previous period, really driven by Lowe's lower revenues.

3:57 Underlying operating profit margin at 9% was 1% lower than the same period last year. And again, that was really just driven by the lower revenues. We have strong operational leverage in the business. And as you grow the revenues, you expand your operating profit margin. And as that revenue came down a bit, we saw a small decrease in the operating profit margin. The forward order book, as James mentioned, continues to be strong. At the end of August, it was $73,800,000 And in September, we've seen that increase further to $81,200,000 And that gives us confidence for the full year outlook. We declared an interim dividend of 2.5p, and that reflects the capital allocation framework that we launched in May when we announced our FY 2025 full year results.

4:43 At the period end, we had net debt of £5,600,000 and that really reflects the usual working capital cycle of the business. We also completed our share buyback in this period, of just under £2,000,000 And of course, we saw a weaker performance in the first half, so we had slightly less cash coming in, in the first half. And pleasingly, at the end of October, that was net cash positive. So just looking at the income statement in a little more detail now. As I've said, revenue for the period was 16% lower at £63,900,000 13% lower in dollar terms. Chartering was 25% lower. Investment advisory, which includes sale and purchase and corporate finance, was 6% lower.

5:28 And risk advisory, which is our securities business, was 9% higher. Importantly, we call it risk advisory, but we do not take market risk. It's a broking only, agency broking business where we just collect commissions. Operating expenses were 14% lower, and that was really primarily driven by lower bonus costs on the back of a lower revenue performance. Underlying operating profit before acquisition related items, 5,600,000, offset 29% lower with that margin reducing slightly to 9%. Underlying earnings per share, 9.3p and in line with our updated capital allocation framework, as I mentioned, the interim dividend is 2.5p. If we look at the breakdown of revenue in a little more detail, whilst overall revenues are down, you can really see the importance of having a more diversified revenue base and building resilience, and we've presented a very similar slide in previous periods.

6:27 Our total revenue was down 16%. Chartering revenues were actually 25% lower where we had those lower rates and longer voyage times impacting revenues. And the BRAEMAR tanker index, which is a measure of tanker rates, was actually down 29% versus the same period last year, whilst the BRAEMAR dry index was down 17% than where it was a year earlier. And offshore desk continued to perform strongly. Investment advisory, as I said, sale and purchase and corporate finance was £1,000,000 lower. The S and P team, the sale and purchase team were very busy in the first half, but it was impacted to some extent by the ongoing uncertainty in the markets. But they are very busy, and we expect to see a good performance from S and P in the second half. And Corporate Finance revenues, whilst not particularly large, pleasingly saw a 49 percent improvement in those revenues as the team moved into different mandates.

7:27 The lower revenues were partially offset by the risk advisory and securities revenues, which increased by £1,100,000 and that was a strong performance from our wet forward freight desk, our coal desk and our natural gas desk as the organized trading facility or OTF went live in The UK, and that allowed our clients to trade more products with us.

7:54 Moving on to operating costs. They continue to be well controlled, and we're continuing to really focus on balancing, between driving efficiencies and investing for the future. Staff costs were £10,400,000 lower, reflecting slightly lower headcount, but primarily lower bonus costs on the back of the reduced revenue. We had an increase of £500,000 on one off payments to levers as we focus on efficiencies across the business. And office costs in the period were £600,000 higher as we had some space that was let That tenant moved out, and we're now reletting that space at the moment.

8:34 So at the end of the period, looking at liquidity, the group had a net debt position of £5,600,000 And that really, as I said, reflects the typical working capital cycle of the group. We pay bonuses after the year end, and then we build up the cash as we go through the period. That £5,600,000 includes £1,900,000 of restricted cash, which will be used to settle the commission obligation that went back to the investigation from 2023. So looking at the movements, the opening net debt on the March 1, 2,500,000. Operating cash flows of £5,700,000 General working capital movements decreased £1,700,000 We paid finance and tax of £1,300,000 We continue to buy shares for the employee share ownership plan of £1,500,000 of course, then the share buyback of £1,800,000 with regulatory payments of £1,400,000 and various other cash flows of 1,100,000 to give us that net debt position of 5,600,000 But as I said, at the end of October, the business returned to a net cash positive position.

9:44 So just moving on to the key performance indicators. As I've said, revenue 16% weaker, really reflecting those lower chartering rates. Revenue per head improved slightly from the second half of last year to £166,000 or $214,000 which reflects a slightly lower headcount in the period. Operating profit margin at 9%, slightly lower, just reflecting the operational gearing in the business. The forward order book remained strong, 73.8, and it's it's it's increased further in September. I covered off the debt and the dividend at 2.5p. Now just talking a little bit about the forward order book in a bit more detail. The forward order book is a measure of revenue to come in future periods, whether it be that we had vessels on time charter, which for a certain period, and we're going to earn commissions whilst the vessel is on those time charters or sale and purchase transactions where it could be a secondhand vessel that's hit to deliver or a new build, which we get stage payments over many years. But we've seen that since 2022, the forward order book has strengthened significantly, up 46% from where it was at that point.

10:56 At the end of September, we had $26,700,000 of revenue, which is going to come through in the remaining five months. And you can see the amounts going into FY 'twenty seven and beyond are amongst the highest they've been. So we've really focused on growing that forward order book and the revenues looking forward.

11:17 And you can see on the right there how that breaks down. Broadly, the breakdown of the forward order book is fifty-fifty between chartering, time charters, etcetera, and sale and purchase, whether it be new builds or secondhand deliveries. I'll now hand back to James to give the strategy update. Thank you, Grant. Okay. So for us, we put some things in place, as I mentioned earlier, back in May last year and strategic framework. So basically, diversification, the most important thing was five years ago when I came into the CEO role was to diversify the business, mainly concentrating on the shipbroking business and businesses that we diversified to complement those business, that we've done. And that's proving very clearly. For example, I can tell you that tanker rates were down some 25% in the last six months. Bicargo rates are down some 17% in the last six months, but our revenue fell by 16%.

12:19 So that shows you that by having a diversified model that we're seeing our other departments compensate for those downward trends. So obviously, for us, it's about also, obviously, globalizing the business and moving into new jurisdictions, which is done. We've ticked that box in Cape Town. And obviously, next thing we need to do is to move into consolidation and target complementary business. That we have been doing. We've rolled out many businesses that did not complement the business and did not work for certain aspects. But the fact is we're maintaining discipline and we've also proven the fact that the acquisitions we have made in the last two or three years have complemented this very highly improved on the margins of business. Operational excellence, that's something that Grant's been very much on top of. First is a focus on data and technology, a larger company with some forty five years of data going back is obviously imperative to for the markets and seeing where the trends are for our clients.

13:21 We continue to invest in compliance. That's becoming an important factor for our business. Shipbroking is not necessarily regulated, but it's moving more and more towards that pace and compliance is a large part of our business and our clients are expecting it. And it's also potentially helping us with as far as acquiring smaller business because the cost of small business having compliance, etcetera, and is needed so much that so that makes it easy for us. And obviously, we want to drive efficiency and reward performance. Now we also mentioned in May that we intend to move the business to a £200,000,000 group revenue by FY 'thirteen. Not to mention the fact that you've broken the loans making $65,000,000 of revenue some ten years ago. So we've already come a long way. We're also setting ourselves some strong targets.

14:12 The risk advisory business, are saying we revised we've mentioned the fact that we want to be at £30,000,000 by FY 'thirty, and we're very confident on that as we've grown that business. Underlying operating profit margin by 15% by FY 'thirty and a net debt maintained below 1.5 EBITDA. Now also, we set some targets about 10 new hires. We went on track for that and some had some very key staff within the business. So you can see from that progress report at the bottom, we've moved on very clearly on that on that strategy there. We mentioned about the fact we want to move into one new jurisdiction. We've done that bank in Cape Town. That business we knew very, very well. And I can tell you now that the reason why they want to join us was because they felt they were too small in what's becoming a more becoming a business that is consolidating.

15:06 So that made it very easy for us. So we've obviously done that already.

15:10 The globalization of globalized tank operations, this is about more about efficiency and making sure the various technologies work together. And we will look to obviously see how we can obviously improve the margin there with looking elsewhere on the on the on the claims side of the business. So you can see we're moving across those arrows there. As regarding the as I said, we've completed the one transaction. So as far as that, were on frank we're definitely on track for our strategic framework.

15:41 Now the outlook and the outlook and summary. Okay. Now chartering markets, as I said to you as I mentioned to you before, the fact that the tanker rates was was hugely down the first six months a year, I mentioned some 25%, and the dry cargo was down 17%. You can see from our BRAEMAR index there. But the good news I can tell you is in the last two months, the markets have massively returned. Although there was uncertainty in the tariffs and as it was going on between The U. S. And China, that seems to settle down. We've seen some recent issues with some major companies being sanctioned again. This is creating the rates to move up. And I can also say from I can tell you now that some of the dark fleet and gray fleet is moving out of the market or moving into storage situation. So the rates are moving massively, and we're seeing more longer haul business.

16:37 The dry cargo market has picked up as well in the last couple of months. And so we're seeing strength there. And we definitely we are definitely gaining in our dry cargo presence in Australia because we've seen a strong harvest in the year as well.

16:55 Okay. Looking further ahead on demand. Global GDP is on target. Think you can see that on the graph, you're aware where on that. China industrial growth. We've mentioned before in the past, we were expecting probably a bit more of China to come out after COVID, but that didn't necessarily happen. We saw major housing crisis, etcetera, in China. That's starting to turn again, and we're seeing that in the markets which we are involved in. And the oil demand index, well, that's obviously since Russia has been had more squeeze on the sanctions, as I said to you, that's increasing the OPEC outflow, which is creating more longer haul, especially U. S. Exports as well. So that's all in a good service that you're talking about.

17:42 Thanks, James. I'll just talk a little bit more about our risk advisory or securities business. So you can see quite clearly here the success we've had growing this business. It it comprised, 20% of revenues for the first six months of the year, up from 16% from the full year last year. And you you can see quite clearly on the chart here, this this particular revenue stream, up 254%, since 2022. And we've got plans to continue to grow that. So we said, as I said earlier, our UK organized trading facility, which is a specific venue that you need to trade certain securities products on, went live in May. Our UK clients are using that, and we can trade more products. We're expanding that offering by establishing a European OTF, and that that progress, it's a it's a very time consuming process. Our UK OTF took over eighteen months to obtain. Our Spanish OTF is where we're putting it in Europe is progressing well. We expect to have that in the first half of calendar year 2026.

18:45 And we're also establishing a presence within the Dubai International Finance Centre. We have a freight desk in Dubai, but we're gonna expand our securities offering there as well, again, to service our clients and their requirements going forward. Thank you, Grant. Okay, so summary and outlook. I think we as you hear from presentation today that we've explained where the first half was and we can feel that resilience of the business and diversification stories pulled us through what we can only say was a weak freight market and chartering market. So it shows the business is very robust, and we're building that business out to help that to help accommodate those problems.

19:33 Underlying operating profit margin down by slightly 9%, returns in that cash position in October, as Grant talked about The UK OTF and the European OTF. And we're interim dividend at 2.5p. So on the outlook, board visitation in line with where we were for 26%, so that certainly remains unchanged. To start the second half, we've seen the markets return. We've been feeling a lot more bullish than we were a few months ago. The forward order book is helping as we further build the forward order book. And our futures departments are doing very well on the back of the volatility in the markets today.

20:20 So that leads us down to what our framework we put in place back in May, and we feel we're very much on track to deliver what we said we'd deliver. The pressure is upon us to deliver that. I think, hopefully, you could see that some of the businesses we bought already are proving very well. And we've definitely ironed out a few things that didn't work, but we are focusing on ones that can work and complement the business. And the market fundamentals remain strong. So we're feeling good about the next six months. Thank you. Thanks. That's great, James Grant. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via our investor dashboard.

21:15 James Grant, if I may now hand back to and kindly ask you to read out the questions where appropriate to do so, and I'll pick up for you both at the end. Thank you. Thank you very much. I'll read the questions here that come from the iPad. Question is, what is the ideal long term balance between chartering, investment advisory and risk advisory to smooth the earnings cycles? I would say I'll take that first. I think that I don't think there is an ideal balance. I think that by virtue of the fact that we are diversified, that does give us the balance. So if you look back on that slide a couple of presentations ago, you would have seen that we had a very strong performance from tankers and a weaker performance in dry cargo. So overall chartering was flat when we grew in investment advisory and risk advisory.

22:03 And you've seen here weaker foot performance in chartering, but we've seen an improvement in risk advisory. So I don't think there is an ideal balance per se that we want x percent of this and x percent of that. But I think it's important to continue to grow all of those revenue streams with hiring individuals or teams or completing M and A acquisitions, which are complementary to build the scale within the business. And so you just continue to drive the growth. I don't think we have either of it's right necessarily that we have a specific percentage target for each sort of division. No. I just I just I just slightly add to that. How I see it is that because the business is more simplified in the last five years and we understand the sectors that we're in fully, of course, the most important thing is to build the breadth out of the business, but making sure that the complementary of the business works.

22:59 The fact is the desks work in harmony. If the spot market is rising, the futures market is busy. If the futures market is busy and the spot market is busy, the S and P transaction, because, you know, owners would probably be buying ships in the back of the present spot market. On the basis that our desks are talking to each other, there's a good reason why we're ahead of the curve compared to our competition. And we're, for sure, seeing the rewards on that as the as the markets tick up. Okay. Next question. Do you consider the current sentiment valuation to be in a trough with a decent rebound ahead as markets normalize? I think I I I assume we're talking about the share price here.

23:45 The you know, you can look at any of the that should be the analysts that are covering the stock and the target price that most of them have is is certainly above where we're trading at the moment. So they clearly believe that there's upside. There's obviously the challenges that The UK market, particularly small cap faces at the moment with the the significant reductions, which are weighing not just on BRAEMAR but on a number of many, many stocks in the small and mid cap sector. So I think that's certainly having an impact. And I would like to think as we start to see fund flows come back into not just the 1,300, but starts trickling down to the mid and small cap that we'll see some improvement as more funds come in. And we're proving the fact that we've put a buyback out, which we successfully completed back in September. So we personally bid the shares that are undervalued.

24:34 But at the same time, we will build a business out to grow that, and we have confidence that we can move that share price in the right direction. Question here about whether we consider the company could be a takeover target. We've got a view on that. We're just focusing on delivering what what what we are. You know? Many many UK listed businesses are looking cheap at the moment, so I wouldn't be No. I just think that the the shiproking space is in a in a up in this business some forty years. So I I've seen weak markets and I've seen bull markets. And this market definitely feels different to where it was during the back in 2008 before the crash. It feels there's a lot more longevity for many, many reasons. I mentioned before the fact that we've seen some 25% cut in shipbuilding capacity.

25:28 So leading back to the question, yes, I mean, look, that's always a potential possibility someone comes forward. But the fact is we feel we're undervalued and our job is to build ourselves out and we feel there's a lot of things that we can get into that still complement the business and parts of world we can reach into to create more business. Question here on cost. How much is 30% rise in central cost is one off? And should we expect margin improvement in H2? There is an element of one off cost. If you look at the RNS, you'll see how we split it down. It's 30%. There's a couple of elements in now. First of all, there's a one off restructuring costs as we focus on efficiencies, and that was staff related. That's GBP $05,000,000, which was a one off in the first half.

26:14 Mentioned we had some additional property costs in there in respect to the space that we're actually it was let when we were in the process of reletting it since it's taking at the moment. I'm hoping that, that won't be in there for the full second half and should be lower. But if you think about the margin improvement, we're this business is very operationally geared, and the revenue we're expecting the revenue to improve in the second half. So if you look at the first half versus second half, you would naturally see an improvement in operating margin. What is the outlook for tanker and charter rates? Would you expect them to fall back now that China US trade tensions have eased?

26:56 Gonna add a bit more of percentage. You talked about the chart on that. I don't think I'm seeing Yeah. Look. I mean, I I think I think that's not necessary. I think it's a situation, the impacts on the various sanctions recently. And, obviously, that so what I'm trying to say here is the fact that the the sanctions in Russia have increased made it more difficult. So whereas some of that hole the hole is going into India to be blended and moved out again, that's not happening so much. We're so we're seeing less of those dark fleet ships that were doing that business now falling into a different scenario, which means that, as I mentioned earlier, they're going into storage, which potentially leads to believe there could be a massive contango in the forward markets. So it brings in then more modern ships of the unsanctioned ships that are doing longer haul voyages out of The U. S, etcetera. So we're just seeing more ton miles, and we've just seen the market massively rebound in the last two, three months. So the moment, we don't see that going away. I think if you also want to look at some of the equities in tanker stocks across the globe, you'll see they've also massively rallied in the last two or three months. That's exactly the reason why I just mentioned.

28:11 Question here, what is the reason for the two, the second half bullishness? I think we've talked about that when we've seen where the rates are. I think it's also worth mentioning, if you look at the business has an element of seasonality in it, where the second half, you generally see an improvement in revenues in the second half driven by colder winters, etcetera. Last year, you didn't see that. It was very much a one off. If you look back historically, you'll see second half performance will beat first half performance. And we expect to see a return to normality in the second year and that's sort of added a bit more around what we've seen on rates, etcetera. Trendy voice of trend in fixture volumes and the increase in charging rates enough to more than offset a decline in fixture volumes. We've definitely, as I said at the start, you know, there are longer voyages, so there's fewer ships available to fix. And, of course, there's been approximately the best estimate we've got is that there's sort of 1,400 vessels on there in dark fleet.

29:09 So they're out of the fixture pool, if you like. So yes, there has been a downward trend in fixtures, but we believe that what we're seeing on rates will offset that and mitigate that. Given the rapid rise in the LNG fleet, is that a vertical you should have a much larger exposure to? If so, how can you expand this? That's an interesting one, okay, because we're discussing that this morning. The the LNG fleet has massively risen, and we are involved in LNG new buildings. We have an LNG desk. Fact is the market is in its worst doldrums at the moment. And we feel we slightly, you know, were able to avoid some some big highs we might have made a couple of years ago in the market, but the market's crashed because a lot of the big a lot of the big transactions or the big deals that are supposed to happen like Mozambique coming on stream this year has been delayed by another two or three years. So we've seen the rates very weak.

30:15 We're seeing new building prices falling down LNG because we realize that the rates aren't there. So for us, this gives an opportunity to build next two or three years for a market which we feel return then. So the moment we feel certain opportunities come open to us, but at the same time for those having a large LNG desk, we'll be feeling the cost of that amount. What's caused the new build purchase market to improve recently given delay to the IMO net zero framework?

30:48 Is it greater confidence in future rates and demand or availability of shipyard capacity? I'd say you touched base on that earlier as well. I mentioned the fact that shipping capacity was cut by some 20%, 25% since two thousand and eight crash. There's obviously the big talk last two or three years about alternative fuels, whether that be LNG fuel chips or ammonia or methanol, etcetera. We're seeing less on the ordering of those ships, but we're seeing more increase in orders on conventional ships. So at the moment, we are seeing ships now. We've been working some deals where we thought we could get delivery by second half twenty twenty eight. It's now moving into '29.

31:38 The market is obviously strong. There's an aging fleet. IMO is sometimes slow to react on certain things. We worry as a broker looking at certain aspects of the business, how many ships are in the dark fleet, gray fleet, as we would call it, flying probably on the flags of non shipping national. So we worry about certain things that potentially these ships aren't being maintained correctly. So I think at the moment, there's just a demand to build ships and the yards are definitely holding it. But also on top of that, it's slightly different from where it was in 2008. It's so much more diversified as in what ships are being ordered because most markets are in a good shape. So that's what's putting pressure on the prices.

32:31 Thanks, James. Just a question here. The analysts over the last five years have been generally positive by recommendation, but the trade the shares have generally traded 34% below. Are the analysts were informed? Look. I think that I think that's frustrating for us. There's no doubt about that as well. And I think if you follow the story, you'll see that we recently recently about a year ago now, we changed corporate broker. We changed our financial adviser. We are making steps to articulate our equity story much clearer than it has been historically. And so we are, you know, trying to address that. It's it's obviously a a frustration internally as well as it it must be for our existing shareholders.

33:19 Yeah. Perfect. That's great, James Grant. Thank you for addressing all those questions from investors today. And, of course, the company can review your questions submitted today, and we'll publish those responses on

33:29 the investment company platform. But James, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please ask you for a few closing comments? Yes. First of all, I'd say thank you for taking time to listen to presentation today for the first half of twenty twenty six results. I'd like to emphasize again that we feel it's going to be a year two halves for sure. I think the first half has been a bit more challenging, but I'd like to see from the results here, you can hear the fact that the business has been diverse to sort of take some of those punches on low chartering rates by building the model out. And we're feeling confident for the second half because the rates are returning. And you can see our forward looking book is increasing, dropping into this year.

34:17 And we're excited, we feel we're in a good place. There's always some challenges in a broken business, but the most important thing is we've got a good young team across the globe in some 19 offices around the globe in 13 different countries. And it feels a moment that everyone is exceptionally busy and that's the most important. And on top of that, I think we're seeing the dollar starting to get a bit more in our favor, which is always a bit more helpful compared to the first half. So listen, most of all, thank you. Thank you so much for taking time. By the way, myself and Grant are always there to answer any email questions if you have further questions to ask afterwards. Okay. But thank you so much. Thank you. Fantastic.

35:02 James Carr, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure we'll be greatly valued by the company. On behalf of the management team of BRAEMAR PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you. Bye bye. Thank you. Bye bye.