Hits: 12

3 March 2020

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Begbies Traynor – Q3 Update

Share Price 78p

Mkt Cap £100m

Conflict Disclosure: No Holding

  • Results Company is trading well so results are expected to be “at least in line” with expectations. Insolvency market is up 7% and both advisory and insolvency divisions are trading well, while property advisory is trading in line with expectations.
  • Estimates were upgraded on H1 results in December and there is more to come. Current forecasts are for PBT of £9.3m and EPS 5.8p. DPS 2.8p. PBT growth of 16% is expected in 2021.
  • Valuation Per 13.4X falling to 11.4X Yield 3.6%
  • Conclusion FRP Advisory comes to market on Friday. There is no public prospectus yet but with their high operating margins I suspect they will be highly values which won’t harm Begbies.  This looks like a good time when earnings will grow strongly and the modest valuation should provide rich rewards.

10 December 2019

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Begbies Traynor – H1 Results  

Share Price 88p

Mkt Cap £112m

Conflict Disclosure: No Holding

  • Update H1 revenue up 20.7% to £33.8m and PBT up 33% to £4m. EPS up 24% to 2.6p (adjusted). Interim dividend up 13% at 0.9p.  Organic revenue growth is disclosed as 10%. Net debt reduced over the period from £6m to £2.3m helped by the £7.8m placing in July. Outlook is confident “at least” in line with expectations.
  • Estimates 3 businesses were acquired towards the end of H1 which make £5.9m revenue and £1.8m PBT annualised.  If we take the H1 revenue and add the acquisitions we get a full year revenue number of £70.5m which compares to consensus revenue of £69m. Undemanding.
  • Valuation PER 15.2X and yield of 3.2%. Adjusted ROE for the current year is c 11%.  
  • Conclusion The shares have been strong performers rising from 60p since July. But the company has an acquisition strategy that is investing earnings (and more) at accretive returns. This could continue for a while helped by the insolvency market. Further to go.

25 October 2019

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Begbies Traynor – Acquisition 

Share Price 85p

Mkt cap £107m

Conflict Disclosure: No Holding

  • Update Acquisition of a London based insolvency practitioner for £2.35m initial and up to £4m deferred consideration over 5 years. That is up to 2X historic turnover and 6.7X profits although the earn out targets aren’t disclosed so in reality the final multiple is likely to be less than this.  
  • Estimates On the last acquisition, 4 days ago analysts didn’t adjust forecasts arguing that the earnings enhancement cancelled out the dilution from the July placing. This could add 10% to PBT which with few new shares issued may be close to the earnings enhancement figure.
  • Valuation PER 18X yield 3.3%. 
  • Conclusion In my experience it is rare to feel excited about an acquisition spree but in this case I do. Because the company can acquire at better ROI than it achieves on its existing business.  As long as the businesses can thrive rather than the staff take the money and run.

21 October 2019

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Begbies Tarynor – Acquisition  

Share Price 85p

Mkt cap £107m

Conflict Disclosure: No Holding

  • Update Acquisition of a Leeds based business transfer agent with 24 employees for up to £4.63m, of which £3m is payable up front. Last year’s revenue from the acquisition was £2.2m and profit £0.7m. Initial consideration is 1.4X turnover and 4.3X profit.
  • Estimates April 2020 estimates are for £8.5m PBT so this should add c 8% to PBT.
  • Valuation PER 15.4X Yield 3.3%.
  • Conclusion Adjusted ROE last year was 9.5%. This acquisition looks like it delivers a return on capital of c 18%, so looks well priced. It may be an unpredictable business but Begbies is now becoming diversified. The shares are looking good value. The concern is always when will the next placing be but having raised £8m in July that is not today’s concern.

30 September 2019

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Begbies Traynor – Tip 

Share Price 74p

Mkt Cap £93m

Conflict Disclosure: No holding

  • Tipped in the Midas column over the week end – based on last year’s 16k insolvencies growing towards the 26k achieved in the golden years of insolvency. They mention the target of £100m of revenues in 3 years.
  • Forecasts are for £66m this year rising to £70m revenue in 2022, so the targeted revenues aren’t in forecasts.  To bridge the gap may need acquisitions. The Exeter restructuring consultant was acquired in September at 2.7X revenue while in April a chartered surveyor business was acquired at c 1X revenue.  So to bridge the £30m gap it seems likely the company will need to pay £30m, which on a £92m mkt cap is significant, and could overhang the share price.
  • Acquisitions This is one of the rare companies that has shown it can acquire at a better ROE than reinvesting in its own business so the acquisition strategy would seem to be fully justified. Last year ROE increased from 3.9% to 5.5%. The shares trade at a 8% discount to NAV. To get above NAV the market needs to be anticipating a double digit return which is close to a doubling of profits from here.  And extra £30m revenue at 20% operating margin would achieve that. The last two acquisitions made 20% and 30% operating margins respectively.
  • Conclusion The acquisition strategy could turn this into a growth stock.  This is effectively a bet on the rate of acquisitions.  I think they may be able to deliver – and more.

19 September 2019

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Begbies Traynor Group – AGM Update 

Share Price 75p

Mkt Cap £93m

Conflict Disclosure: No Holding

  • Update All areas have continued to perform well on the back of national insolvency appointments up 9% in the first 6 months of 2019. 
  • Estimates Trading is in line with expectations for £8.5m PBT and 5.5p EPS
  • Valuation PER 13.5X Dec 2019, yield 3.7%
  • Conclusion The ROE is increasing on the back of useful acquisitions while their markets are helping.  This company could have a good year or two ahead. Having raised £8m in July the company could make further enhancing acquisitions. I can see 20% upside.

26 July 2019

Begbies Traynor – Placing  

Share Price 78p

Mkt Cap £89m

Conflict Disclosure: No holding

  • Update. The company is raising £8.3m at 75p per share by accelerated bookbuild to finance further acquisitions. Having made 4 acquisitions last year this looks like a sign of confidence the company has identified further acquisitions that it can make.
  • Estimates Begbies recently acquired Barker Story Matthews at 3X PBT. If they can achieve that with the £8.3m proceeds it would add £2.8m to PBT which would be a 30% uplift on this year’s forecast foe 10% share issuance.  Looks like we can look forward to some useful earnings enhancement ahead.
  • Valuation PER 14.2X Yield 3.6%
  • Conclusion The company seems to be getting rather comfortable with the acquisition routine. It has been acquiring at higher ROE than its existing business. Further the expansion of the footprint expands the referrals from other professional services business enabling the company to report better organic growth. And so the acquisition spiral starts.  There is a long way to go from this small base so this looks like a good opportunity. We just need to keep a weather eye on the risk that when acquisitions slow so will organic growth. But that is way beyond the horizon from here.

9 July 2019

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Begbies Traynor – FY Results 

Share Price 74p

Mkt Cap £84m

Conflict Disclosure: No holding

  • Results Revenue is up 15% to £60.1m. Adjusted PBT up 27% to £7.1m and EPS 4.9p. DPS is 2.6p, while net debt reduces to £6m (2018 £7.5m). Outlook refers to good momentum and being confident to deliver market expectations. Property services is now 30% of the operating profit where the margins are a little higher than the recovery and financial advisory business. Before overheads the margin is 21%
  • Estimates Revenue is expected to grow a modest 7% to £64.4m in the current year which translates to 19% PBT growth to £8.4m and EPS of 5.5p.
  • Valuation PER 13.4X Yield 3.8%
  • Conclusion Last year the insolvency market grew 10% and I rather fancy the market for this year.  So we may have upgrade potential.  The ROE remains a lowly 8.5% and earnings need to grow significantly for this to become more highly rated which is not being forecast. So there may be upgrades but upside looks modest for a £85m market cap company.

7 May 2019

Begbies Traynor – Trading Update 

Share Price 60p

Mkt Cap £69m

Disclosure: No Holding

  • Update Strong Q4 results in revenue and profit for the year now expected to be “comfortably” ahead of expectations.  Driven by fee realisations the outperformance derived from both divisions. Cash collection was also strong so net debt expected to be £6m at year end. Integration of recent acquisitions proceeding in-line with expectations.
  • Estimates Revenue for the year to April 2019 was expected to be £57.6m (+10%) and adjusted PBT £6m (+13%). Comfortably ahead may imply a 5-10% beat.
  • Valuation PER for April 2020 is 11.5C and yield 4.6% prior to upgrades which could reduce the rating by 5-10%
  • Conclusion The synergy in the acquisitions is that as Begbies are now able to refer more to other professional the referral network is likely to refer more to Begbies.  It is possible that may start to become increasingly relevant going forwards. The ROCE has always been low in the past which has deterred me but with increasing cash generation and better returns from the increasing number of acquisitions this is now starting to change.  As the ROCE improves a rating of 15X may be visible which would equate to 75p/share.

5 May 2019

Begbies Traynor – Acquisition 

Share Price 63p

Mkt Cap £76m

Disclosure No holding

  • Acquisition BSM is an Eastern England commercial property agent and consultant with 38 staff for up to £3m which is expected to be earnings enhancing.
  • Estimates The price is c 1X turnover and 5X profits which represents a 20% return on capital. This looks potentially 15-20% earnings enhancing
  • Valuation PER 12 and yield 4.4%. The reason for the modest valuation is the low ROE because the insolvency business is very heavy on working capital. As its ROC increases through its diversification strategy this will improve
  • Conclusion The ROE enhancing acquisition should deliver a re rating as well as earnings enhancement.  If the acquisition is 15% earnings enhancing we might get 5p odd of EPS and 15X would give 75p.  And who knows Brexit could also deliver a few insolvencies.

1 February 2019

Begbie Traynor – Acquisition 

Share Price 62p

Mkt Cap £68m

  • Acquisition In their December results Begbies said they had a pipeline of acquisitions. Today they have acquired Croft, a provider of highway, transport and traffic advice to a corporate client base of developers, housebuilders and land owners based in Manchester. The price is £4m although £2.5m of this is based on a 5 year earn out with apparently stretching targets. The initial multiple is 2.1X Sept 18 PBT although the final multipe will be higher dependent on what the stretching targets are.
  • Estimates Forecasts are for 10% earnings growth to April 20 and this acquisition would appear to be p[otentially 7-10% EPS enhancing
  • Valuation PER is 13 and yield 4.5% for the year to April 2020 before we add in say 7% earnings enhancement
  • Conclusion  Shares are starting to look cheap.  I always wonder exactly where the sensitivity is here. I take the view that insolvency work is in structural decline due to the increased flexibility of the CVA as a tool and property services is a good but unexciting market. Net debt at October 18 was £6.3m.  A few more earnings enhancing acquisition could start to make this share too cheap.

19 December 2018

Begbies Traynor – HY Results 

Share Price 69p

Mkt Cap £76m

  • Results  Revenue up 8% to £28m and PBT up 10.3% to £3.2m. EPS up 10% to 2.2p and net debt down 10% to £6.3m. These results benefitted from the acquisitions of Springboard corporate finance and CJM Asset Management. The outlook says they expect a second half weighting and they are “well placed to deliver on current market expectations.
  • Estimates  Estimates are for £57m for the year to April 19 which leaves £29m to achieve in H2.  Given the expected H2 weighting this may leave room for upgrades. The acquisitions were made in February and March so include a full 6 month contribution from both Springboard and CJM.  The contribution from them isn’t disclosed in these numbers but if we assume last years revenue contribution that would be £1.75m for the 6 month period which is nearly all the growth.
  • Valuation PER is 15.8X and yield 3.8%
  • Conclusion Organic growth look lacklustre and less than the insolvency market growth of 6%. Investors would do better to take a look at Manolete who having recently come to market report strong interims today.