FTSE 250 firm Clarkson (LSE: CKN) describes itself as an integrated shipping services provider. However, during 2016 almost 75% of profits came from ship broking, where the firm connects firms wanting commodities and cargoes shipped with those owning and operating cargo ships of all kinds. The company also serves the shipping industry with services in the areas of finance, support and research.
Profits down, dividend up
Today’s full-year results show underlying pre-tax profit down a shade more than 11%, and underlying earnings per share contracting by 5%. That looks grim, but the directors expressed their confidence in the outlook for Clarkson by hiking the dividend by 5%.
Chief executive Andi Case reckons that challenging shipping markets have not stopped the firm being cash generative and profitable and he points to indicators suggesting that shipping and offshore markets are beginning to ‘recalibrate’ as reasons to be cheerful about the outlook.
Although there must be an element of cyclicality in the firm’s business, as its fortunes are tied to the ups and downs of the shipping market, Clarkson declares that it has delivered fourteen unbroken years of dividend increases.
At a share price near 2,562p, the forward price-to-earnings (P/E) ratio for 2018 sits around 19 and the forward dividend yield is just below 2.8%. City analysts following the firm expect forward earnings to cover the payout just 0.8 times. The valuation is too rich for me and I think there are better potential investments to get excited about, so I won’t be buying shares in Clarkson.
Growing fast
Premium cinema chain operator Everyman Media Group (LSE: EMAN) trades on the FTSE AIM market. Today’s full-year results show a surge in revenue of 45% and the firm swung back into a profit of £61k after losing £556k during 2015. However, the profit is small compared to the £29.5m Everyman collected in revenue, and borrowings run at just over £3m with a new £20m borrowing facility announced today to fund further expansion.
The directors aim to demonstrate the firm’s earning potential by reference to adjusted operating profit before depreciation, amortisation, pre-opening expenses, exceptional items and share-based payments of £3.9m, which compares to the £1.7m achieved during 2015.Â
Fragile finances?
I’d describe such financials as fragile, but the firm is growing and profits often lag revenue growth in such circumstances. Yet the cinema industry strikes me as cyclical, because cinema tickets are one of the first expenses consumers can ditch in any economic downturn that squeezes incomes.
Right now, Everyman operates 20 venues, up from 16 at the beginning of 2016, which gives some idea of the growth potential. At today’s share price around 114p, the forward P/E rating runs at 36 or so for 2017 and there is no dividend, which is common for firms in an early stage of growth.
There’s no doubt that Everyman’s approach to the sector appeals to customers and the firm is set on a growth trajectory. However, I’m too concerned about the capital intensity and cyclicality of the cinema business to become involved by owning some of the firm’s shares.