Full-year results from the Human Screen

Like its bigger rivals, shipbroker ACM Shipping looks cheap. But factor in the uncertainties, and the Human Screen is running scared.

Highlights

• Adjusted operating profit down 31%
• Return on tangible assets: 19%
• Adjusted net profit of ''3m compared to net cash flow of ''0.5m (-''0.5m after net capital expenditure)
• Net debt including approximate capitalised lease obligations of ''5.5m up 193% at ''2.5m, 14% of tangible assets (the company also has a pension deficit of ''1.5m)
• Per-share dividend up 2%

The Human Screen comments:

Having looked at bigger rivals, Clarkson and Braemar, and now ACM Shipping, the Human Screen remains terrified by shipbrokers. They operate as intermediaries between ship owners and the companies that need to move stuff around the globe but decades long cycles in shipping are driven by demand for the natural resources and manufactured goods ships carry, and globalisation.

Shipping is in the doldrums at the moment, so ACM is positioning itself for an upturn in the market, although its not saying when that might be. The Human Screen’s fear is it might be fifteen years. Although that’s a grim prospect for ship owners who lose money every day their ships are not chartered and choose to scrap relatively new tankers rather than suffer continuous losses, it might be less so for brokers who can adjust more quickly to lower volumes and charter rates and profit from, for example, brokering demolition.

Another uncertainty that unnerves the Human Screen is the dependence by brokerages on very highly paid staff, rather like their counterparts in the City. The loss of an undisclosed number of brokers in 2012 induced ACM to write down the value of ACM Shipping Services, acquired in 2007, by ''7.8m in this year’s results, which the Human Screen has treated as an exceptional item and added back into his profit calculations.

The resulting return on tangible assets of 19% looks very healthy, and an unlevered post-tax earnings yield of 12% looks cheap, but the Human Screen hesitates to interpret the valuations of shipbrokers. They’re cyclical, so he doesn’t trust their earning power, and most of their assets, people, data, networks, are intangible.

We’ve seen from the write-off this year, the value of intangibles isn’t particularly trustworthy either. ''7.8m was nearly 40% of shareholder’s equity, a considerable impact since it was members of the Sale and Purchase team, a less significant part of the business than chartering.

More on ACM, also see Expecting Value’s recent post ‘On Shipping‘.

Worksheet

HS+ (worth watching for improvement in fundamentals/price)