MIDAS SHARE TIPS UPDATE: Growth expected at insolvency practitioners FRP and Begbies Traynor
Insolvency practitioners are notorious for making money when economic conditions turn nasty. Sure enough, both Begbies Traynor and FRP are seeing an increase in enquiries from cash-strapped firms buckling under the strain of higher costs, rising interest rates, labour shortages and supply chain issues.
Begbies and FRP do try to help companies in trouble, and are involved in mergers and acquisitions too. But both make the lion’s share of their revenues from insolvencies and administrations – sorting firms out once they have completely collapsed.
When the Covid pandemic erupted, this line of work was expected to balloon. In the event, many businesses were kept afloat by the Chancellor’s largesse. Most of his schemes have now ended, however, just as the country faces a raft of new economic problems.
Turn for the worse: Begbies and FRP do try to help companies in trouble, and are involved in mergers and acquisitions too
Begbies and FRP are both likely to benefit. Begbies tends to work on smaller insolvencies, often firms with fewer than 20 employees. FRP is also involved in the small business market, but has been making inroads at the larger end too, handling administrations such as those of Debenhams and Prezzo, as well as restaurant chain Corbin & King, owners of top London restaurants The Wolseley and The Delaunay.
Brokers expect Begbies’ profits to surge 50 per cent to £17.4million in the year to April 30 and the dividend should rise by nearly 7 per cent to 3.2p. At FRP, analysts expect slightly more restrained growth – with profits up 6 per cent to £22.4million in the year to April – but the dividend is also likely to rise by 7 per cent to 4.4p.
Further growth is expected for both firms next year and beyond.
Midas verdict: Midas recommended Begbies in 2019 at 74p and again at £1.05 in 2020. Today, the shares are £1.18. FRP was also recommended in 2020, at £1.24. The stock has bounced around, but is at £1.22 now. Both firms should gain ground and FRP has the added advantage of a 3.5 per cent dividend yield. Existing shareholders should stick with their stock. New investors could find particular upside from FRP.
Traded on: AIM Tickers: BEG and FRP Contact: begbiestraynorgroup.com or 0161 837 1700 and frpadvisory.com or 020 3005 4000