Liberum downgrades Clarkson after profit warning

Liberum downgraded FTSE 250 shipbroker Clarkson to 'hold' from 'buy' and cut its price target to 3,200p from 3,600p on Monday following a profit warning, as it reduced its forecasts on quieter asset transaction markets and FX.

Earlier, Clarkson warned that both first-half and full-year profits are now expected to be "materially below" the previous year following a number of headwinds in the first quarter.

In a very brief trading update, the company said that the "challenging environment" in shipping and offshore capital markets has led to transactions being pushed back and has compounded a quiet period in sale and purchase activity for the group across shipping and offshore. In addition, Clarkson has suffered from lower freight rates within the tanker market and a fall in the value of the US dollar, which is the main trading currency of its banking and broking businesses.

As a result, Liberum has cut its forecasts by 25% for the current year and 15% for 2019. On its revised forecasts, Clarkson trades on 2018E price-to-earnings of 31.5x and dividend yield of 2.4%. Liberum said that while Clarkson warrants a premium rating based on its market position and the potential to benefit from better market conditions, it is difficult to see a re-rating from current levels.

"The cut to earnings estimates is clearly disappointing, especially after the optimism on markets expressed by management at the FY results in March. However, we see the short-term challenges as reflective of uncertainty supressing transaction activity in asset markets, and the capital markets that fund them, rather than the result of a widespread reversal in freight rates.

"Indeed, we believe the long-term fundamentals for shipping markets remain attractive and compelling."

Liberum said demand and supply should come into better balance as constraints on shipyard capacity and bank financing limit supply growth, with tighter environmental legislation likely to accelerate the scrapping of older ships.

"Clarkson remains well positioned to benefit from better market conditions, even if they are still not yet upon us, having deepened and broadened its capabilities to build an unrivalled market position."

At 1450 BST, the shares were down 20% to 2,480.10p.