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A look at ACM 18 May 2014

 

 

 

There are, as many of us know, numerous areas of Industry that can be regarded as being highly cyclical, not least the area of shipping.

It isn’t a sector that I actively visit, although I did hold JAMES FISHER a good few years back, subsequently doing rather well on them, after actually getting the timing right.

While that was, as I say sometime back now, there is one company from this area that has caught my eye over the weekend, which may actually be worth a closer look.

This is ACM Shipping, where the shares currently sitting at £2.40p, are not far off the twelve month high of £2.68p and a good deal healthier, than the recorded low of £1.51p.

Like others in the sector, ACM has had to endure some pretty tough years of late, with a decline in revenues, along with profits being squeezed into reported losses.  

While it may not exactly be brimming with confidence as yet, there nevertheless appears to be a more positive tone emanating from the company, which had been hit by impairment charges last year, in part from a previous acquisition.    

 

As for the business as it stands, ACM is described as one of the World’s leading shipbrokers, whereby it provides a fully integrated suite of offerings for worldwide industrial transportation.

This effectively sees it acting as a traditional middle player, bringing various parties together and providing a range of services.  

Founded back in the 1980’s the company actually came to the market in 2006 and has subsequently expanded away from London with an increasingly global reach.

This now sees operations taking in the likes of Australia, China, Dubia, India and New York.

With a team of more than 140 Brokers ACM is active across the whole range of seaborne transportation, embracing oil, liquid petroleum, gas along with dry bulk commodities and refined products.

Its offerings include derivatives, sale & purchase along with in depth research as important back up.  

Within the aforementioned there is a specialist structural finance and tax based leasing deal service, while clients are provided with the latest market trends and information.

 This is effectively supported by data bases covering tankers, vessels and freight rate assessments, all important factors for players in the marketplace.

Despite going through what appear to be some lean years, ACM has nevertheless seemingly been pushing on with expansion, which may now begin to bear fruit as the sector emerges from a cyclical slowdown.

In 2009 an office was opened in Beijing, followed a year later by the acquisition of a cargo business in Australia along with a complementary cargo desk opened in London.

By 2011 Dubia was also on the map for the company, providing more scope for brokering deals with major oil companies.

Although revenue in the last few years declined largely due to the wider effects of the global economy, ACM does look well placed to capitalise on any sustained recovery in the short to medium term.

 

In better years it has already demonstrated the ability to deliver strong pre-tax profits such as the £6.1m four years back on revenue of £25.8m, while there has also been an impressive return on capital employed

Although ACM has someway to go in order to achieve the previous level of numbers, its most recent interim results which were released last November do give some cause for cautious optimism.

 

That saw the company actually outperform its UK listed peers with the delivery of a pre-tax profit of £1.5m against a previous loss of £2.1m.

Part of the turnaround appears to have been delivered with the implementation of self help measures, including a streamlining of operations along with tight cost control.

 

The Group as a result, now appears to be winning new business, while continuing strong volumes from China, India and Singapore have also assisted a more confident tone.   

 

Expectations for this year are for pre-tax profits of £3.25m rising to £3.8m in 2015 with EPS of 14.7p pencilled in.

 That suggests a forward PER of 16, which admittedly may well imply the shares are well up with events for now.

However, there would appear to be some solid growth potential on offer, as the sector emerges from a very challenging period and which in turn could see profits rise more quickly than presently envisaged.  

 

  ACM also pays a reasonable dividend, which is anticipated to be 10.2p per share for this year, yielding in excess of 4.3%.

Although the forecast dividend cover at 1.2x earnings is below what I would normally look for and may suggest it is in danger of being cut, rising profit expectations and a solid management team may suggest otherwise.

 In the past, ACM has demonstrated adequate cover in excess of 2x earnings, which could equally imply that the boards intention to maintain the dividend, gives confidence ahead.

 

Perhaps of equal importance in any potential investment case at ACM is the strength of the balance sheet, which although not awash with cash, nevertheless looks solid enough. 

 

At the time of the last interim results, cash stood at a robust £4.7m while the company was pleasingly debt free.

The market cap of £46m in relation to the wider picture and health of the business also looks modest enough and again would seem to compare well with peers.

Major shareholders at ACM include Chief Operating Officer Mark Rudd with 6.2%, while AXA Framlington and Hargreave Hale each hold just over 5% of the company.  

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