11th Dec 2023 12:25
(Alliance News) - Insolvency advisor Begbies Traynor Group PLC should benefit from the current UK economic environment of high inflation and interest rates, analysts said on Monday.
This is despite the Manchester, England-based business recovery, financial advisory and property services consultancy saying profit fell in the first half of its financial year, as costs rose faster than revenue.
Pretax profit fell 40% to GBP3.0 million in the six months that ended October 31 from GBP5.0 million a year earlier.
Revenue was up 13% to GBP65.9 million from GBP58.5 million, but this did not fully offset rising costs. Direct costs rose 17% to GBP38.1 million from GBP32.7 million, while administrative expenses rose 19% to GBP24.3 million from GBP20.4 million. Transaction costs multiplied to GBP3.8 million from GBP828,000.
Despite the lower profit, Begbies Traynor still opted to raise its interim dividend payment by 8.3% to 1.3 pence from 1.2p a year earlier.
"Consultancies and professional services firms have generally had a tough year, with clients sharply cutting back spending amidst difficult economic circumstances," said Edison analyst Neil Shah.
"But Begbies Traynor, which provides insolvency and restructuring advice to companies, is well-placed to take advantage in this environment of inflation, high interest rates, and general economic uncertainty."
Begbies Traynor Executive Chair Ric Traynor noted how the current interest rate and inflation environment in the UK had benefitted the company, and that it expects this to continue.
"Our insolvency team has maintained its market-leading position (by volume) in a growing marketplace nationally, with an increase in insolvency numbers reflecting the current interest rate and inflation environment; whilst our advisory and transactional services teams had a successful six months, reflecting the breadth of advice we provide to our clients, which continue to provide a solid platform for growth," said Chair Traynor.
AJ Bell's Russ Mould noted a 17% increase in the number of businesses going insolvent in the UK in the six months to the end of September. "In worrying signs for the UK economy [Begbies Traynor] expects this trend to continue through the remainder of its financial year," Mould said.
Looking ahead, Begbies Traynor said it expects a continued increase in insolvency in the UK.
"We anticipate that activity levels in our largest service line of insolvency will continue to increase in tandem with the indicators of corporate financial stress in the UK, resulting from the current interest rate and inflation environment," it said.
It financial advisory arm is anticipated to deliver a "broadly consistent" second half, Begbies Traynor said, while property advisory and transactional services expected to deliver "another year of strong growth".
"Our broad range of services, diversified client base, organic growth initiatives and pipeline of acquisition opportunities, combined with increasing counter-cyclical activity, leaves us confident of continuing to build upon our strong track record in the current year and beyond," Chair Traynor said.
Research house Equity Development also sees upside for Begbies Traynor, noting its GBP200 million medium-term annual revenue target. In financial 2023, revenue was GBP121.8 million.
"That characterises the potential management sees and its confidence in the visibility and repeatability of its current strategy. Recent investment has put BEG in a good position to extract growth both organically and via further additions. Recent acquisitions are reported to be trading in line with expectations and organic initiatives delivering," said Equity Development.
"We expect the group to deliver more of the same, but don’t rule out larger acquisitions, finance for which is readily available with GBP1.1 million of net cash at end October and significant headroom within committed bank facilities."
Shore Capital backs Begbies Traynor's financial 2024 revenue to rise by 10% to GBP134.0 million.
"Begbies has issued a strong set of interims...which is in line with the November 20 trading update and indicates that momentum is continuing across the business, especially in insolvency. The outlook is positive reflecting Begbies' earnings bias to countercyclical activities," said Shore analysts Jamie Murray and Vivek Raja.
"We are top of the range, but nudge down our [earnings-per-share] numbers after increasing share count. That said, we note that if there is a pick-up in mid-market administrations, we think Begbies could deliver upside to our forecasts."
Shore forecasts Begbies Traynor's financial 2024 adjusted earnings per share to tick up to 10.2p from 10.1p a year earlier, and for adjusted pretax profit to rise 8.9% to GBP22.5 million from GBP20.7 million.
Shares in Begbies Traynor were up 1.9% to 115.39 pence each in London on Monday afternoon.
By Greg Rosenvinge, Alliance News senior reporter
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