- Tight supply-demand situation is driving prices up
- Strong likelihood of another dividend increase
- Firm is embedded in the ‘green’ transition
Shipbroking and finance firm Clarkson (CKN) posted a sharp increase in first half earnings thanks to strong demand for shipping capacity and healthy shipping rates.
The company raised its interim dividend by 2p to 20p per share, putting it on track for a 20th consecutive year of increasing payouts, but a nervous market saw the shares marked down 4% to £34 on low volume.
TIGHT MARKET
The group posted profits before tax, central office costs and investments of £58.1 million for the first six months against £40.2 million last year, driven by a 55% increase in profits at the broking division to £47 million.
High volumes and rising shipping rates caused by supply chain disruption, port congestion and reduced vessel speeds produced ‘standout’ performances in the dry cargo, tanker and sale and purchase markets.
In dry cargo, fears over shortages of products such as grain - due to the conflict in Ukraine - meant buyers having to secure supplies from other sources, typically further away, which added to demand.
The tanker market, which got off to a slow start, saw a ‘significant’ rise in rates due to disruption in supplies and the rise in crude and gas prices, although restrained demand from China kept a lid on the VLCC (very large crude carrier) market during the half.
The whole shipping market is facing a shortage of supply due to years of low orders of new ships, yard closures and a lack of willingness by lenders to provide finance to what has always been seen as a highly cyclical market, resulting in rising rates.
On an underlying basis, pre-tax profits rose 53% to £42.2 million while the firm’s free cash resources increase by over £10 million to £102.5 million.
A GREENER FUTURE
On top of the supply-demand imbalance, companies who ship their goods around the world and the companies who own the ships are all facing another challenge, that of reducing their carbon footprint.
Clarkson advises shipowners and global corporations on their options, and while there is no obvious ‘ultimate’ solution to cutting greenhouse gases a first step for many is committing to dual-fuel ships which use LNG (liquified natural gas) as well as fuel oil.
According to chief executive Andi Case, of the $56 billion of newbuild vessel orders in the first half of 2022 close to two thirds were for alternative fuels.
Although LNG isn’t as environment-friendly as, say, hydrogen, there is still a meaningful saving in greenhouse gas emissions, and while gas prices are high at present future supply looks plentiful.
‘Customers are tracking their emissions and taking conscious decisions to reduce them, even if it doesn’t result in an increase in profits’, says Case.
‘Either they invest now, or ultimately they will have to buy carbon credits which are only going to get more expensive’, he adds.
LEARN MORE ABOUT CLARKSON
