MIDAS SHARE TIPS UPDATE: Lighten load as ship giant Clarkson hits choppy seas
Midas recommended Clarkson in February 2021, when Covid-19 was still a potent force but businesses were starting to feel as if recovery was in sight. Back then, the stock was priced £26.75. Today, shares in the shipping specialist are £36.35, a 35 per cent gain in just 18 months.
Clarkson is the world’s largest shipping broker, matching shipowners with companies that want to shift goods across the sea. Shipping rates have soared in recent times, reflecting a post-pandemic surge in demand for goods, intensified by the war in Ukraine. Clarkson charges a fee for every transaction is arranges, so the group has reaped the benefits of a market in rapid recovery.
Looking ahead however, investors might feel nervous. Shipping is traditionally a cyclical business. When rates rise, shipowners rush to build new ships. Supply then increases, often just as demand is falling off – and rates fall.
Troubled waters: Clarksons has delivered growth in tough markets
This time may be different, or so Clarkson’s supporters believe. The number of shipbuilders has fallen dramatically since the financial crisis and the number of banks willing to finance big shipping loans has reduced substantially, too. That means shipping magnates cannot commission new craft at pace, even if they want to.
Concerns about the environment are also having an impact, with shipowners under pressure to decommission gas-guzzling craft and replace them with greener alternatives. This may constrain supply in the future and provides a source of revenue for Clarkson today, as the firm advises shipping companies about how best to navigate through the eco-maze.
Core demand for shipbroking remains perky too, despite the recent economic slowdown.
Perhaps most encouragingly, Clarkson has a strong track record of delivering growth even in tough market conditions. Last week, chief executive Andi Case unveiled a 53.5 per cent increase in first-half pre-tax profits to £42.2million and a 7.4 per cent hike in the interim dividend to 29p, marking almost 20 years of dividend increases.
Brokers expect annual profits to increase by around 20 per cent to £84million, accompanied by a 7 per cent rise in the full-year dividend to 90p, with further growth expected next year and in 2024.
Clarkson benefits from an involvement in almost every area of the shipbroking market, arranging the transit of goods including wheat and corn, bulky metals, crude oil, liquefied natural gas, chemicals and consumer products, but offering financial and strategic advice as well to both shipowners and cargo customers.
Case has been at the helm since 2008 and invested wisely in the business, hiring clever people and ensuring that the group is at the top of its game technologically.
Midas verdict: Clarkson shares have risen nearly tenfold under Case’s stewardship. There have been ups and downs along the way, but the long-term trajectory has been sound and dividends have added to shareholder returns. Investors may choose to take comfort from past performance and stick with the shares. But selling a chunk of shares at £36.35 could prove to be a sound decision. Case is a skilful skipper, but choppy seas lie ahead.
Traded on: Main market Ticker: CKN Contact: clarksons.com or 020 7334 0000