Begbies Traynor Share Discussion Threads

[suetballs] 02/6/2021 10:54

Looks like £1.40 firmly in the rear view mirror.
Suet

[tole] 30/5/2021 13:54

https://masterinvestor.co.uk/equities/small-cap-round-up-featuring-begbies-n-brown-circassia-and-more/Begbies Traynor Group (LON:BEG) – good corporate recoveryThe year-end trading update from this business recovery, financial advisory and property services consultancy group was extremely bullish – with the management predicting that its finals will be far better than market expectations.Analyst Rachel May at brokers Shore Capital upped her estimates for the end-April year from £77.6m revenue to £83.7m (£70.5m), while lifting her profit view £0.4m to £11.5m (£9.2m).Going forward the expanded group could see £97.5m sales this year and £17.2m profits, worth 8.6p per share in earnings.Those estimates mean the shares continue to look attractive, trading at around the 134p level.

[bogman1] 30/5/2021 12:29

https://apple.news/AIOZe-JGzQiW60lBT1XzDow

[suetballs] 28/5/2021 07:08

Yep - regrettably the weak will perish.
Sad but a fact of life.
Suet

[boonkoh] 27/5/2021 19:48

Big trade today! Printed as a sell on ADVFN...

[its the oxman] 27/5/2021 08:55

Looking nicely poised to break 140p

[hawaly] 26/5/2021 15:52

Presumably for those who don't own a computer

GLA 😎

[wcj] 26/5/2021 14:21

iii piece yesterday:


Over the next six months, this company should attract more and more momentum buying.


Last December at 87p, I set out a ‘buy’ rationale on AIM-listed corporate recovery specialist Begbies Traynor Group
BEG
0.15%

. Its interim results to 31 October had cited the biggest quarterly leap in UK financially distressed businesses since 2017 – up 6% to 557,000 despite a legal backlog thwarting wind-up petitions.

Acquisitive firms usually enjoy a near-term boost
Operating margins had also re-rated to 15% after databases have shown annual mid-single-figure percentages. Mind however, there is scope to take radically different views as to profit, hence price-to-earnings (PE) multiples also.

When a group like this is acquisitive (four already this year) transaction costs will be significant but are stripped out of ‘normalised217; profit. Amortisation of goodwill (the premium paid to tangible value, which is usually big for a successful ‘people business’) is also deducted, albeit chiefly an accounting convention.

It does mean such listed companies can report dramatic uplifts in performance, but you may not know exactly how successful are the deals for a few years. With earn-outs typically taking up to five years, these can also weigh on profits by way of contingent liabilities. Personalities may clash as people businesses integrate. Once vendors have completed their earn-outs, they and other staff may move on.

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10 shares set for earnings growth
Such concerns are brushed aside, however, amid current ‘risk-on’; sentiment towards equities. Begbies has progressively re-rated over 60% and now tests 140p a share, which capitalises it at around £200 million.

Management says results for the group’s year to end-April will show revenue of £83.7 million versus expectations for £77-79 million, and adjusted pre-tax profit will be £11.5 million versus £10.5-11.5 million. Encouragingly, this is before the 2021 acquisitions kick in.

A mercurial, if potentially very rewarding, business to project
Various factors conflate, if not conflict. The broad sense of owning Begbies shares is as a play on more challenged times – its quarterly ‘red flag’ alert reports of UK businesses showing a trend of rising financial stress in the year or so. This may get worse as government support measures taper off to leave vulnerable firms exposed.

A curiosity has been such red flag reports showing a 42% year-on-year increase in ‘significant’ financial distress since the first quarter of 2020. Yet the actual UK insolvency rate has plunged 34% to 11,081 firms in the year to end-March 2021 – due to financial support measures.

Management says it raised UK market share from 8% to 10.4% over two years from October 2018. This, together with an increase in the average case size, has mitigated weakness in the overall market.

The sense that insolvencies are poised to rise – Begbies cites an expected 50% increase during 2021 – grates with economic messaging that the UK economy is already experiencing its strongest recovery since the Second World War. Although it could be that an overdue clearance of ‘zombie’ firms (over-reliant on debt) is about to happen.

Also blurring projections on Begbies’ revenue/profit is how insolvencies often have a deferred element, paid out of the administration process, which may take years. Potentially this could enhance Begbies’ numbers on, say, a three-year view.

You can therefore entertain varying scenarios, possibly with a median even base-case outlook for ‘normalised217; net profit of £10 million – or higher, if synergies arise from the takeovers. Mind, better performance will increase earn-outs, hence temper profits growth.

Modest dilution from deals helps a low PE scenario
With near 151 million shares issued (the deals have not involved onerous dilution and the group has circa £3 million net cash not debt) a £10 million normalised net profit scenario implies a forward PE sub 7x – hence the stock has justifiably tweaked up from about 125p before a 20 May year-end trading update.

As AIM stocks go, Begbies is a quality operation in essential business services and with a proven earnings/dividend record. It offers a radically better risk/reward profile than many that are more speculative.

The stock is down a penny or two this morning, but on a six months’ view I would not be surprised if it continues overall to attract momentum buying. The chart, underlying potential and valuation all look attractive, assuming insolvencies do rise.

So while it is tricky to confidently assert ‘buy’ on a longer-term view, the company’s credentials do look stronger than ever. I adjust stance to ‘hold’, simply reflecting wider uncertainties and a re-rating, but this should not be interpreted as a downgrade. It is just more speculative now to assert a conviction of ‘buy’.

Busily acquisitive this year, with the two biggest-ever deals
January saw the £21 million (including earn-outs) acquisition of CVR Global, a leading insolvency practitioner, which added the group’s first overseas office. A significant overlap of operating locations was said to enable £750,000 of annualised operating synergies.

Then in February came the £1 million purchase of a small London-based firm of chartered surveyors, to integrate with Eddisons, the group’s property advisory side.

Underlying group trading also appeared to improve by this point: on 23 February it was said the annual results would be “at least” in line with expectations.

In March, another key insolvency practice was bought: David Rubin & Partners, in London/Guernsey, for £25 million (including earn-outs). This was Begbies’ largest acquisition, intended to boost its presence in the UK business recovery market especially in London. A £22 million equity placed at 105.5p incurred 16% dilution.

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May has seen the addition of MAF, a Midlands-based finance broker for up to £12 million with earn-outs. Working with banks and specialist funders, MAF arranges finance for firms in a wide range of industries towards buying equipment, vehicles and property. It is hoped to complement other Begbies services, especially debt advisory, and should also extend the group’s relationships with lenders.

Begbies Traynor Group - financial summary
Year ended 30 Apr

2015 2016 2017 2018 2019 2020
Turnover (£ million) 45.4 50.1 49.7 52.4 60.1 70.5
Operating margin (%) 0.7 3.7 2.9 5.3 7.3 5.5
Operating profit (£m) 0.3 1.9 1.4 2.8 4.4 3.9
Net profit (£m) -1.6 0.5 -0.3 1.4 2.3 0.9
EPS - reported (p) -0.6 0.4 0.2 1.3 1.9 0.7
EPS - normalised (p) 1.4 0.9 1.3 2.0 2.9 2.4
Price/earnings ratio (x) 57.4
Return on equity (%) -1.0 0.7 0.4 2.5 3.9 1.5
Operating cashflow/share (p) 3.9 6.2 5.2 6.6 4.9 1.3
Capital expenditure/share (p) 1.3 0.5 0.3 0.4 0.9 0.6
Free cashflow/share (p) 2.6 5.8 4.9 6.2 4.0 0.7
Dividends per share (p) 2.2 2.2 2.2 2.4 2.6 2.8
Yield (%) 2.1
Covered by earnings (x) -0.3 0.2 0.1 0.5 0.7 0.3
Cash (£m) 9.2 7.6 6.7 3.5 4.0 7.3
Net debt (£m) 12.8 10.4 10.3 15.7 14.6 11.1
Net assets (£m) 61.0 60.2 58.1 56.2 58.1 65.6
Net assets per share (p) 55.7 54.3 54.4 51.1 50.8 51.3
Source: historic company REFS and company accounts



Pattern of rising distress levels in UK business
If Begbies’ red flag reports are portentous than a rear-view mirror, the UK insolvencies market is now primed.

The fourth-quarter 2020 report had cited a 13% increase in businesses in significant distress – the largest since the second quarter of 2017 – albeit unsurprising as lockdowns tightened once again after a relatively easy summer. Each of the 22 sectors monitored showed an increase in significant distress, with 18 experiencing double-digit increases in the final quarter of 2020.

Moreover, it was said likely “these figures are the tip of a very large iceberg” given Covid-19 had reduced court activity and winding-up petitions.

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The first-quarter 2021 report proclaimed a 15% increase in firms in significant distress over the previous quarter alone: “This is a very concerning for the UK economy and highlights the deteriorating financial situation for many companies.”

That is a reality check for optimists who reckon on a Roaring Twenties period ahead – as disposable income conflates with demand now unleashed. Begbies’ reports are effectively saying raised consumer demand is vital to offset potentially lower corporate demand within the overall economy. But it could just mean a vigorous restructuring lies ahead.

Quite a tough call then, with fresh money
It depends how disciplined you want to be, and how speculative. Unless Begbies’ reading of the insolvency market is flawed, and its expansion has come at precisely the wrong time, profit-taking looks premature. If broadly correct, then analyst targets of 165p a share are well justified and will get raised again in due course. Hold.

[boonkoh] 25/5/2021 19:49

You don't understand the business model. They "struggled" to make money during the past year because so many dead companies were kept afloat with free govt loans.Testament to management that they grew top line revenue despite a shrinking market. All that govt support that will start to unwind now. Guess what's going to happen. You're paying peanuts for almost guaranteed earnings growth next 2-4 years.On top of that, loads of commercial properties will now be distressed - breaching loan covenants and needing to be auctioned off. Or restructured.

[suetballs] 25/5/2021 18:49

hxxps://www.ii.co.uk/analysis-commentary/stockwatch-share-well-placed-if-insolvencies-rise-ii520276?utm_source=newsletter&utm_medium=email&utm_campaign=NEW-DLY-ENGAGE-afternoon_round_up_250521%20(1)&utm_content=newsletter&spMailingID=1358120

[davr0s] 25/5/2021 18:22

Equally you could say pandemic over so zombie company's that have been propped up are now going to go under so good for BEG

[texaschaser] 25/5/2021 10:27

pandemic over, fee income will now drop

[route1] 24/5/2021 18:37

If today's action is anything to go by then Equity Developments TP should happen very soon.....

[bogman1] 24/5/2021 16:33

140. Lovely.

[rcturner2] 24/5/2021 13:14

If they post eps of 10p and have a great outlook going forward to increase that in future years then this is significantly undervalued.

[suetballs] 24/5/2021 09:50

Increased my holding this am.
Suet

[its the oxman] 24/5/2021 09:21

Hoping we have less for mid 140s at least on this push higher, plenty to go for longer term though.

[edmonda] 21/5/2021 09:11

Outlook does seem promising. New note published by Equity Development with 165p / share still seen as fair value, free access see here:

[route1] 20/5/2021 10:02

A sound investment for the exceptional times we live in.An extremely professional and well managed Company.Lots more upside to come.Impressed.

[daneswooddynamo] 20/5/2021 09:56

Looking very solid indeed

[its the oxman] 20/5/2021 09:14

Should see some good upside on the back of this positive trading update.

[rcturner2] 20/5/2021 08:23

Paul Scott very positive on Stockopedia.

"Begbies Traynor (LON:BEG) (I hold) - year end trading update for FY 04/2021 - comfortably ahead of expectations. Also strong cashflow, ending the year with net cash of £3.0m. 4 acquisitions in the last year have gone well. There's lots to like here - I see BEG as cheap, and executing well on acquisitive growth."

[boonkoh] 20/5/2021 07:59

Begbies must be outperforming the overall insolvency market, as the actual total UK insolvency numbers are down YoY in last 6 months. Bodes well for when they start to normalise.