Begbies Traynor Share Discussion Threads

[topvest] 27/10/2017 18:54

Very interesting as ever. The UK GDP number did sound a bit out of step with what we are seeing in the real world, so you may be right. The U.S. data is possibly harder to dispute?

[aleman] 27/10/2017 18:39

They don't tell you that revisions to GDP can be +/-0.5% or more for steadier times and much more, perhaps +/-1.5%, at turning points - the reason being because 55% of first estimates' data are (conservatively) modelled. So UK Q3 GDP is probably in the range 0.9% to -0.1% if we are in a period of steady growth but, possibly, if we were turning up or down it could be between +1.9% and -1.1%. I think we are approaching a downturn and Q3 GDP will be revised down. (This can take years and does not have to be second estimate.) Here are latest revisions for the last recession:


Quarter ...... 2/08 3/08 4/08 1/09 2/09 3/09 4/09

Preliminary .. +0.2 -0.5 -1.5 -1.9 -0.8 -0.4 +0.1

Latest ....... -0.7 -1.7 -2.3 -1.6 -0.2 +0.1 +0.4

(See Table 2)



So, what are the odds of +0.4% for Q3 being right? Why don't they quote error? And why do economists and financial journalists make such a fuss about 0.1% changes when they must know the error range could be 20-30 times that?

When you look at insolvencies rising, credit growth slowing, defaults rising, company formations slumping, profit warnings jumped, retail sales slowing, car sales falling, van sales falling, housing prices slowing, house purchases decreasing, disposable income being squeezed, claimant count creeping up, and so on, it's hard to look at the history of GDP revisions and not expect that revisions will be down and possibly significantly so.

[topvest] 27/10/2017 17:59

Yes, all interesting. How do you see the bullish GDP numbers from the US and U.K. - these are not giving the same picture are they not?

[aleman] 27/10/2017 09:43

Insolvencies rose significantly in Q3. Adjusting for a technical distortion, the underlying number of corporate insolvencies was up 15.0% on Q2 and 14.5% on a year ago. Individuals' insolvencies rose 10.6% on the quarter and 7.7% on the year. In rough terms, overall insolvencies were the highest for 4 years, and the trend has been slightly up for nearly two years, probably with a little recent acceleration.

[aleman] 26/10/2017 16:42

Growth in the number of UK companies slowed in Q2 and slumped in Q3, as the number dissolved increased.

Quarter Formed Dissolved Net formations

Q1/14 147,274 87,223 60,051
Q2/14 148,393 92,515 55,878
Q3/14 141,807 96,561 45,246
Q4/14 136,184 97,138 39,046
Q1/15 159,397 83,312 76,085
Q2/15 153,422 87,047 66,375
Q3/15 147,049 99,219 47,830
Q4/15 138,802 90,437 48,365
Q1/16 172,096 134,157 37,939 (technical spike due to legal change in Q1/16)
Q2/16 172,935 111,930 61,005 (and Q2, maybe?)
Q3/16 154,685 102,681 52,004
Q4/16 146,987 111,133 35,854
Q1/17 170,143 108,919 61,224
Q2/17 152,411 114,756 37,655
Q3/17 153,307 129,734 23,573

See chart of slowing formations:



Recession starting?

[aleman] 26/10/2017 14:30

Well it looks like the recession has landed. Retail sales fall at fastest rate since March 2009 and axe jobs.

[aleman] 24/10/2017 07:43

Note that this does not take place immediately but is a proposal for legislation around 2019. I'd guess it might be a bit late for the downturn in this credit cycle.

[topvest] 23/10/2017 20:59

Yes, the Pendragon profit warning was very notable today. An excellent H1 for new car sales, but H2 is slowing sharply. Shows that things are turning down fast. It's all starting to look rather cloudy!

[aleman] 22/10/2017 13:10

BEG went up last time because it looked like the world was ending. The reality was the cut in base rate from 5.0% to 0.5% quickly made that doubtful and personal insolvencies soon peaked towards the end of 2009, with it being apparent in financial markets that the worst was over before then. Personal insolvencies, in the end, only rose from 25k to 35k and then drifted down until a couple of year ago. Corporate went from 4k to 7k in a similar trend. (scroll down for charts)



That 0.5% interest rate saved loads of zombie companies and actually meant those in debt up to their eyeballs could go out and borrow more so the economy grew again. Do we see a repeat in the next recession? A 4.5% base rate cut limited the personal insolvencies rise to 40% and corporate to 75%. The question is, how far can they cut from the current 0.5% and what will that limit the rise to?

Share prices don't tell the full tale. The dividend never fell below 2.2p so the share price fall to 20p was quite an extreme undervaluation. It is arguable that the shares should never have gone over 100p and never fallen below 50p. Now ask, if base rate cuts are now so limited, and actually insolvency rates are surprisingly still remarkably similar to 2007, how far can they cut base rate and how much will that stop the shares going over 100p again? If we get another recession - and I think that is very likely - and they can only cut base rate to zero before hitting problems, then I think we can go way over 200p. The last recession was cut off before it started. The GDP hit was focussed more on the financial world, with limited job losses, and did not make it onto the streets in the same was as previous recessions before ultra low interest rates saw a quick (superficial?) financial recovery. The next recession might take down the weak companies and consumers that should have gone last time. But maybe central bankers can come up with some new ingenious financial engineering to save the zombies .....

Whatever comes, I agree with topvest that BEG is a good countercyclical stock. If the recession doesn't come. my other stuff should do okay and BEG should continue to pay a respectable enough dividend. If the recession does come, the already rising trend in insolvencies should soar and so should BEG.

[topvest] 21/10/2017 11:53

That's a fair point but if you look at the share price it rose significantly to £2 immediately before the recession and peaked in the Autumn of 2008. I would suggest the share price is looking out at any point in time and this stock will benefit most in the run up to a possible recession as it has started to do already. Last time it came down sharply when insolvencies didn't happen as normal in a recession largely due to money printing and super low interest rates. Insolvencies are at multi decade lows and that is starting to change. Its a pretty good hedge if you ask me, particularly in the next year if a recession is looking more likely. I'm looking to hold long-term, but top-slice half in the Spring if things unfold as I expect.

[finkie] 20/10/2017 21:54

Really topvest?! Did you bother to look at their share price in 2008 which was the start of the recession at 200p and their price in 2011/12 the end of the recession which touched a low of 20p?

Hardly counter cyclical last time was it :-)

[topvest] 20/10/2017 16:33

I've added a few more today. Best counter-cyclical share on the UK market if recession is on the way in my honest opinion.

[finkie] 18/10/2017 16:38

Lets hope then my Begbies shares will finally go up whilst the rest of the portfolio plummets but hey ho.

[aleman] 18/10/2017 12:00

The UK employment numbers looked weak this time. Claimant count was up a whisker as last months fall was nearly revised away so the trend there still looks very weakly upwards since Feb 2016. A 5.1% spike in part-time self-employed and a rise in Public Admin and Defence pretty much accounted for all the rise in overall ILO employment which itself looked slightly weaker. PT self-employed hid a lot of unemployment in the last recession according to a couple of documentaries back then - you got slightly better benefits that way. Take out these oddities and you are left with a flat private sector with below-inflation pay increases - a deteriorating trend over the summer which is reinforced by a number of weak corporate trading updates in the consumer sector. It looks like the UK could be going into recession.

[topvest] 15/10/2017 11:58

Thanks Aleman. I hold HAT and RFX - both are doing well with EPS forecasts being pushed up steadily. As it happens I own NAHL which looks either a bargain or a value trap. I also hold LCG which is one of my worst performing shares. It could recover from where it is now, but I won't be adding more in this as I don't trust management at all and they have diluted shareholders enormously. On balance, I think BEG and HAT are probably the best two counter-cyclical buys you mention, albeit HAT has a personal loan book as well. It's a real challenge isn't it as most shares will be going down when things start going pear shaped!? I've sold out of my unsecured lenders now and reinvested in Secure Trust (which I like). Also hold some Park Group that you mention and happy to hold that long term. Think its really a case of holding as much cash as possible (without exiting the market) and only holding shares that will bounce back after a 12-24 month downturn and are prudently financed. Think Technology stocks are going to be the worst performers soon as the valuations are just crazy. Retailers and restaurant stocks have already been slammed and have further to fall. I've reduced my positions on a few investment trusts exposed to technology companies and exited anything I'm not comfortable holding for the long haul.

[aleman] 15/10/2017 10:08

Here is the graph for US credit card defaults. It was expected to rise in Q3, but early banks to report show larger jumps than were predicted, so the graph will likely show further upward acceleration when updated.



An a couple of early Q3 reports



For Q3 2016 St Louis Fed has the total at 2.29%. The second article says Citibank had 2.25% charge-offs. A year later, it is 2.84%. I'm not sure these are strictly comparable, but it gives an idea of how things are deteriorating significantly, and it looks to be accelerating.

[aleman] 15/10/2017 10:03

Pawnbrokers are generally consider countercyclical - RFX and HAT. The first has a bigger forex business so the second, which I hold, is probably a little more countercyclical. Some legal companies can be countercyclical, as folk that are struggling financially are more likely to make opportunistic legal claims, possibly frivolous - but these still have to be processed and/or defended. I hold NAHL which look to be recovering from planned legislative changes to part of their market (whiplash) and might be such a beneficiary. Even if not actually countercylical, they are still probably not cyclical and benefit from a huge yield if they adapt okay to proposed new regulations. I think there are a couple of other small listed legal firms that might not be cyclical and might even be slightly countercyclical. I hold LCG, a growing spread betting company, where cash burn seems to be reducing, even though calm markets do not suit them. They look to have enough cash for a year or two,which might or might not see them into profitabililty, but they would benefit tremendously from a return to volatility that a downturn might bring. They are rather speculative, though. Including BEG, that's 4 shares I have that I reckon could be countercyclical.

There are probably others about, such as budget retailers and specialist finance companies - but your never quite sure which ones have got their product offerings at the best level or have the optimum filters when doing credit checks. What do people spend more on if they are short of cash and go out less? Satellite TV? Dinner parties? Cooking utensils? Books and magazines - or do they just surf internet more? Dental/medical plans? Park hampers? That's a few ideas but how that translates into acual share choices, I'm not so sure.

[topvest] 14/10/2017 20:09

Thanks Aleman - again very interesting. We are normally behind the US, so that is encouraging at least. US markets possibly being supported by Trump tax cut promises. Do think its only a matter of time before we have some form of correction and volatility. Keep posting and much appreciated. Any thoughts on other contra cyclical plays? Begbies is the best I can think of. I'm holding quite a bit of cash (heading towards 20%) but don't get involved with short selling, so my options are limited.

[dozey3] 14/10/2017 17:53

According to Sharescope: BEG yield circa 4%, PEG 0.2, quick ratio 2.4, debt £10m, cash per share 10p. I suppose it is the erstwhile uncovered divi that muddies the water, but in the present climate that's likely to be very temporary. Must hasten for a cold shower because otherwise will be adding to my already weighty holding.

[topvest] 14/10/2017 07:34

Thanks. Yes, very interesting. I tend to agree with you. Think the economy has already gone over the top and is now heading down. Similar to Summer / Autumn 2007? A global stock market correction may well trigger the reality. Maybe we will lead the U.S. this time around given the Brexit and inflation factor. This bodes badly for the U.K. and we could be first in and last out.