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Insider: why buyers are backing these two mid-caps

19th April 2021 09:56

Graeme Evans from interactive investor

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A lifting of Covid restrictions will have a positive effect on global shipping and cinema audiences.

A senior director at shipping broker Clarkson (LSE:CKN) has spent £77,000 on shares after the FTSE 250 company rode out choppy conditions to grow its dividend for an 18th year in a row.

Remuneration committee chair Tim Miller, who has been on Clarkson's board since 2018, made two separate purchases last week at prices of 2,892p and 2,935p, compared with the share price low for the pandemic of about 2,000p in November.

Clarkson dates back to 1852 and is a world-leading intermediary between companies with cargo to ship and those with vessels capable of shipping it. The company brokers deals for the huge tankers that carry crude or petroleum as well as dry cargoes of iron ore or grain.

Its results last month showed Clarkson overcame volatility in commodity prices and the severe disruption to energy demand brought about by Covid-19 to deliver 2020 results better than market forecasts.

Underlying profits were 9% lower at £44.7 million, and a non-cash goodwill impairment charge of £60.6 million relating to 2015's major acquisition of Platou in Clarkson's financial division contributed to a bottom-line loss of 95.2p a share.

But with a robust cash position of £81.1 million the company was still able to maintain its progressive dividend policy. This means shareholders will receive a final dividend of 54p a share on 28 May, which is a 1p rise on the previous year and comes on top of an unchanged interim dividend of 25p a share.

Headwinds are likely to persist until the Covid-19 pandemic passes, but a stronger order book and firmer freight rates as the global economy recovers have given the company confidence that it can cope with a stronger pound to US dollar exchange rate.

Andi Case, who has been chief executive since 2008, said markets have historically been oversupplied but there are signs of an increased shortening of the supply of ships.

He said: “The shock to demand from the pandemic has meant the impact of this shortening has not yet been properly reflected in the markets.

“In 2021, we have already seen stronger rates in a number of sectors, and even if not sustained in the short term, we are clearly no longer in markets saturated by excess tonnage.”

This is what the analysts think

Liberum analyst Gerald Khoo reacted to last month's results by increasing his price target by 100p to 3,200p, which is about 250p short of the company's record high seen in 2018. He added that the company's premium rating of 23.4 times 2021 earnings was more than warranted.

Khoo said: “The strength of the business model, market leadership and global footprint has allowed the group to remain profitable and cash generative in a highly challenging environment.” 

He noted that profits of £55.4 million in the broking division were close to record levels, while Clarkson looks to be well positioned to benefit from the transition to new propulsion and fuel technologies as the shipping industry targets lower carbon emissions.

Remote working also has the potential to drive take-up of the company's new Sea/ platform, which offers paperless, cloud-based charter negotiation and contract processing.

Betting on Cineworld's comeback

A new board director at Cineworld (LSE:CINE) has wasted no time backing the cinema chain's potential recovery after buying £15,000 worth of shares in a purchase disclosed on Friday.

Ashley Steel, who joined the board on 1 April, bought the shares at a price of 98p, which compares with 122p seen last month and the pandemic low of 24p recorded in October.

The purchase was made on the day Cineworld's Regal theatre chain in the United States took a big step in its phased re-opening following six months of Covid-19 disruption.

Having opened some cinemas for the new Godzilla vs Kong movie on 2 April, last Friday saw the release of another hoped-for box office hit with the first showing of Mortal Kombat. The US market accounts for about 75% of Cineworld's business.

In the UK, which is the company's second biggest market, cinemas will re-open in May in accordance with current government guidance. Prior to Covid-19, the 2019 global box office reached an all-time record of $42.5 billion (£30.7 billion).

The company, which has an estate of 767 cinemas worldwide, told investors in last month's annual results that it had sufficient headroom for 2021 and beyond after raising $810 million (£584.9 million) of liquidity.

Steel is a former vice-chair and member of the UK and European boards of KPMG, having led its global transport, leisure and logistic practice for 11 years. Until February she was on the board of GoCo Group, which is now owned by Future, and previously served as a non-executive director at the BBC and the Civil Aviation Authority.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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