Clarkson Plc Shares the Pain of the Shipping Industry, Takes Big Hit on the London Stock Exchange

(Bloomberg) — Clarkson Plc, the world’s largest shipbroker, plunged the most since 2009 after saying this year’s earnings will be lower than executives expected because of a slump in vessel prices.

Clarkson fell 8.7 percent, the most since Jan. 22, 2009, to 1,187 pence by the close in London trading, reducing the shipbroker’s market value to 225.3 million pounds ($359.9 million). The slide was today’s second-biggest in the 602- company FTSE All-Share Index.

The number of ships bought and sold dropped this year, cutting broking revenue, London-based Clarkson said in a statement today. “Tightness” in the availability of debt to finance vessel purchases also curbed transactions and values, according to the shipbroker. A glut of ships that carry iron ore and coal curbed returns by stoking competition for cargoes.

The deterioration in freight rates “has come as a surprise,” Gert Zonneveld, an analyst at Panmure Gordon in London, said in a note to investors. “Even though Clarkson has seen increased volumes throughout most of its broking operations, allowing it to further build market share in most areas, this is likely to be insufficient to offset the magnitude of the rate declines” and volume weakness, he said.

Zonneveld lowered his estimates for the company’s shipbroking earnings and reduced his share-price prediction by 13 percent to 1,300 pence, while maintaining a buy recommendation. “We remain bullish on the longer-term prospects for Clarkson” and expect it to continue a “progressive dividend policy,” he said.

Analysts’ Advice

Damian Brewer, an analyst at RBC Capital Markets, also lowered his price target today, to 1,000 pence from 1,200 pence. Of the six analysts who report their research on Clarkson to Bloomberg, four recommend buying the shares and two, including Brewer, have the equivalent of a hold rating.

“The short-term outlook for rates and values is uncertain, with demand-supply imbalance a brake on recovery,” Clarkson said. Weaker-than-expected activity in the second half “resulted in a reduction in the board’s expectations for full- year results.”

Freight rates for iron-ore carrying Capesize ships are on course for the lowest annual average since at least 1999. The secondhand sale price of the carriers, each able to hold about 160,000 metric tons of cargo, fell 19 percent to $30.1 million in the past year, according to the Baltic Exchange, a London- based publisher of freight costs on more than 50 trade routes.

Shipbroking revenue also came under pressure because most transactions are concluded in dollars and the currency declined against the British pound, Clarkson said.

Capesize charter rates averaged $6,925 a day since the start of January, according to the exchange. That would be the lowest annual hire cost since at least 1999, its data show. The secondhand price of tankers hauling 2 million-barrel cargoes of oil fell 4.8 percent in the past year to $55.4 million, according to its figures.