I’m bullish and optimistic about the UK’s economic prospects for the years ahead. And I also feel that way about the world economy. And that’s despite the pandemic, Brexit, ultra-low interest rates, the financial crisis in the noughties and its aftermath, and everything else.
I’d buy UK shares like these
Because of that view, I’m keen on UK shares such as Braemar Shipping Services (LSE: BMS). The company is restructuring and refocusing its business, reducing debt and preparing for growth ahead.
However, with the market capitalisation near £77m, this is a tiny company. And shareholders will be exposed to all the normal risks associated with smaller enterprises. On top of that, Braemar operates in a cyclical sector and the stock is exposed to the effects of the ups and downs in the wider economy.
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But today’s full-year results report contains a number of positives. Chief executive James Gundy said the business exceeded the directors’ expectations for financial performance in the period. And the firm made progress in re-focusing operations towards its “growth-oriented” shipbroking strategy.
Part of the effort involves simplification of the business model. And I reckon that’s almost always a good thing. The company has also made progress reducing its borrowings to “manageable levels” and improved its management structure. Gundy thinks Braemar is now well-placed to benefit from the global recovery that’s underway.
A positive multi-year outlook
If the general economic recovery from the pandemic continues, shipping markets will likely improve. And the company is seeing “strong” trading now at the beginning of its new trading year. The directors underlined their confidence in the outlook by reinstating shareholder dividends and declaring a payment of 5p per share.
Gundy nailed his colours to the mast and said: “The outlook for Braemar for the next few years is positive.”And City analysts expect a mid-single-digit percentage increase in earnings for the current trading year to March 2022. Meanwhile, with the share price near 248p, the forward-looking earnings multiple is around 11.
Braemar scores well against quality indicators. The return on capital is running near 15% and the operating margin close to 10%. I also think I’m seeing decent value given the improving nature of the business and the tailwind from the world economy. For me, the stock is a decent ‘buy’ for a multi-year cyclical recovery and growth trade. I’d aim to buy some of the shares and hold for around a decade.
Risks and opportunities
However I could, of course, be wrong in my judgement. The biggest risk, as I see it, is that economies turn down again and I could end up with a losing investment.
But Braemar isn’t the only UK share I’m keen on right now. For example, FTSE 250 branded food producer Premier Foods is also in the middle of a refocusing and restructuring programme. The firm is reducing its borrowings and rebuilding itself for sustainable growth ahead. I think it operates in an attractive, defensive sector and has every chance of growing its business in the years ahead.
But if earnings growth fails to materialise, the shares could fall in value from the current level near 105p. Nevertheless, I’d embrace the risks and add the stock to my long-term diversified portfolio.
