Companies: SPH   

Shipbroking may be a forgotten corner of the City of London, but it is far from gone. Now a merger has been agreed to produce a second London broker of real clout - to rival market leader Clarksons.

This is the first consolidation of size in the sector for 30 years. Around the shipping fraternity in St Mary Axe, they are saying that this is a firm - with nearly 200 employees - that could finally stir things up.

Between them, the merged companies broke most shipping activities - from tanker chartering, sales, purchases, new builds, offshore marine support craft, anchor-handling, towing, diving-support, and so on.

While shipbroking can be highly cash generative, the business is highly cyclical. It comes and goes - often late in the cycle - with world trade and the oil markets. At the moment, despite world economic fears, the markets are looking buoyant.

The shipping market has been touched by technology like all the others in the City. Driven by the recent volatility in freight markets, the three merging companies have been involved with others to start broking freight forwarding swaps for oil tankers operating on key trade routes.

The main aim of the new market is to offer a hedging mechanism. Called Global Freight Forwards, it provides a platform for trading on an over-the-counter (as opposed to on-exchange) basis.

Seascope's full year figures for 2000, just reported, reflected losses in the first half when market conditions were poor, and perhaps a degree of distraction amidst all the upheaval.

The figures showed a sales rise of 21 per cent to £12.06 million, but profits down from £1.93 million to £1.85 million. Earnings per share emerged at 15.96p against 19.38p before. However, the recovery apparent in last year's second half is expected to wash over into 2001.

Seascope chairman Sir Peter Cazelet concedes that the time spent on a number of projects was protracted. But he believes that the economic fundamentals of the shipping market in terms of supply and demand should 'remain favourable through 2001 and into 2002'.

Forecasts will be difficult until the merge has bedded down and year-ends have been coordinated. In the short-term, management understands the need to keep the yield underpinned.

Despite the profits dip, the final dividend of 10p was held for 2000, making 15p in total.

But the profits are trending nicely upwards, according to house broker Wise Speke, and the shares have begun to attract interest outside the normal small circle. On the basis of last year's figures, the shares sell for 13 times earnings and yield 7 per cent.

More importantly, perhaps, Seascope is now of sufficient size to appeal to income-hungry small company funds.

Seascope's management has been in the business for years and survived some hard times. With the merger, it will now have the opportunity to mop up some of the small fry in the industry - not just at home but abroad too. Buy.