Around 85% of global freight is shipped by water at some point in its journey so, yes, the stuff Amazon and Walmart sell goes through brokers. We don’t know the precise mechanics of who’s interacting with the brokers but that’s how the stuff moves.
May 31, 2023·edited May 31, 2023Liked by Six Bravo
Worth noting that of the £340mm net cash a huge slug of that is set aside for staff bonuses (~£226mm)- a big slice of comp packages in ship brokerage. Not all bad, as in down years less of it gets paid out but screens won't pick this up for EV calculations. Still a very good business which should do fine over a full cycle, one I'm looking at closely.
Key point that probably screens this as cheap. How do you get a to a mid cycle earnings number though? Also any thoughts on the CEO, I’m not against him getting paid well if the company does well but some negative press. Iirc variable comp is based on TSR and EPS
It's a tough one- while this isn't as cyclical a business as you might assume and held up well in 08-10, drastically reduced shipping volumes and rates aren't good news. Suspect that macro pessimism is why it's sitting on a lowish multiple after a strong year last year. I think you do OK over a full cycle but this could tread water for a couple of years, so I'd be thinking about it as a medium-long term idea as macro makes my head hurt.
Management quality/communication/incentives are all pretty middling in my view, against that brokerages are pretty good businesses so I'll settle for basic competence. RS Platou acquisition was in 2015 and they've since retired the brand so you'd hope that's a signal that 'transformative' acquisitions are off the table...
Thanks for this, came across your podcast in the process of doing research into clarkson. It was helpful.
I would double check your earnings number. They have very tricky accounting where they include a lot of personnel related expenses in cash from operating activities and net profit.
If you follow the changes in cash less accrued bonus liabilities and employee stock ownership trust stock purchases, you get down to around £40m/£50m fcf in last few years. Given that rates on certain freight lines remain at 10 year highs, I believe it is possible low cycle fcf could reduce down to the dividend of £30m. Given current £830m market cap that would be a pe of almost 30 so not a bargain by any means.
Simply put it appears the company have been syphoning up to 50% of the earnings given as net income into employee compensation packages meaning little remains for shareholders beyond the dividend.
Have still not finished my research but thought I would highlight the red flags as I found your write up useful. Let me know if you would like to discuss the findings further.
Thank you for taking the time to describe a company I didn’t even know existed.
I’m left with a few questions after reading your write-up:
- Who uses shipbrokers and who doesn’t? For instance, do Amazon and Wal-Mart use their services for the majority of their shipments?
- Who are Clarkson competitors? How do they compare on size, costs, etc.?
- Is there an up-and-coming industry that could make shipbrokers obsolete?
Tian, we’re glad this piece was helpful!
Around 85% of global freight is shipped by water at some point in its journey so, yes, the stuff Amazon and Walmart sell goes through brokers. We don’t know the precise mechanics of who’s interacting with the brokers but that’s how the stuff moves.
https://lloydslist.maritimeintelligence.informa.com/LL1142516/Top-10-shipbrokers-2022
We don’t see a big competitor on the horizon. AI will eliminate jobs in the space but that will probably just lower the brokers expenses.
Worth noting that of the £340mm net cash a huge slug of that is set aside for staff bonuses (~£226mm)- a big slice of comp packages in ship brokerage. Not all bad, as in down years less of it gets paid out but screens won't pick this up for EV calculations. Still a very good business which should do fine over a full cycle, one I'm looking at closely.
Key point that probably screens this as cheap. How do you get a to a mid cycle earnings number though? Also any thoughts on the CEO, I’m not against him getting paid well if the company does well but some negative press. Iirc variable comp is based on TSR and EPS
It's a tough one- while this isn't as cyclical a business as you might assume and held up well in 08-10, drastically reduced shipping volumes and rates aren't good news. Suspect that macro pessimism is why it's sitting on a lowish multiple after a strong year last year. I think you do OK over a full cycle but this could tread water for a couple of years, so I'd be thinking about it as a medium-long term idea as macro makes my head hurt.
Management quality/communication/incentives are all pretty middling in my view, against that brokerages are pretty good businesses so I'll settle for basic competence. RS Platou acquisition was in 2015 and they've since retired the brand so you'd hope that's a signal that 'transformative' acquisitions are off the table...
Interesting. Another interesting UK company
Andrew, we're glad you found it worth a read!
Thanks for this, came across your podcast in the process of doing research into clarkson. It was helpful.
I would double check your earnings number. They have very tricky accounting where they include a lot of personnel related expenses in cash from operating activities and net profit.
If you follow the changes in cash less accrued bonus liabilities and employee stock ownership trust stock purchases, you get down to around £40m/£50m fcf in last few years. Given that rates on certain freight lines remain at 10 year highs, I believe it is possible low cycle fcf could reduce down to the dividend of £30m. Given current £830m market cap that would be a pe of almost 30 so not a bargain by any means.
Simply put it appears the company have been syphoning up to 50% of the earnings given as net income into employee compensation packages meaning little remains for shareholders beyond the dividend.
Have still not finished my research but thought I would highlight the red flags as I found your write up useful. Let me know if you would like to discuss the findings further.
All the best,
Tom
This is a buy and forget about for decades idea...
It's a data monopoly disguised as a cyclical shipping broker. Increasing returns, first mover advantage, network effects.