Frp Advisory Share Discussion Threads

[buffetteer] 21/3/2016 09:52

one has to calculate what you think the business is worth. I think it is quite undervalued on 8x earnings with high cash flow. This more than reflects the company in transition .they have successfully milked the declining divisions for cash which is rightly being invested in growth areas where they think they can add value . Im inclined to see how they get on this year in legals and trust the management

[rivaldo] 21/3/2016 09:34

Yep, good post GHF. Must admit to reassessing and coming to the same conclusion, so I sold my small initial stake on Friday. Nowt particularly wrong, but as GHF says perhaps not too much upside, especially given the lack of EPS progress over the next couple of years.

Cue a large earnings-enhancing acquisition and large share price rise :o))

[sportbilly1976] 21/3/2016 09:22

seems quite a few have followed you ghf....

ah well, lets see where this settles

[glasshalfull] 18/3/2016 12:01

Courtesy to say that I've sold out this morning...sorry it dented the share price. Hopefully short lived for holders.

I'm not a day-trader and at 2- days, this has proven to be one of my shortest lived holdings for a while. I cut my position on the back of listening to yesterday's webinar and also reviewing forecasts.

Both Shore Capital & Panmure have shaved profit forecasts for the current year marginally, by 3% & 2% respectively. Equity Development have also done likewise with a 2% reduction in their case. All fairly small beer but essentially it washes out that expectations for the Debt solutions business are reducing further than the upgrades coming through for the Legal side.

This leaves forecasts for the year ranging between EPS 19.3p & 19.6p. Therefore negligible growth in overall earnings this year, notwithstanding any contribution from acquisitions which I'm certain will materialise. Lower margins are also forecast this year at 18% (vs 21% in 2015) due to margins falling back slightly in the debt & claims side.

Debt is however higher than I'm comfortable with, especially with management reiterating the acquisition strategy that is summarised in rivaldo's post above (post 445) & confirmed via yesterday's webinar. Net debt was £13.6m at yr end & is only forecast to fall to £10.9m by end of 2016 given the contingent consideration due following the Legal business acquisitions. While I recognise they have a £25m facility to support acquisitions, should they deliver on the two types of acquisitions proposed, then naturally debt will climb further & may require some form of fundraise down the line.

See there's already been debate on the thread today centring on dilution.

Factoring in current debt also highlights that the shares aren't quite as cheap as the headline PER of 8 suggests. Market Cap of £71.7m & therefore an EV of £85m, which I now believe fair value given my concerns over debt & commentary highlighting lower forecasts for the Debt solutions side; muted concerns over the small claims limits/ whiplash claims & fairly static earnings progression forecast for the next 2-years due to the potential contingent consideration requirements. These earnings forecasts of course discount any earnings enhancing acquisitions.

Essentially once I considered all factors the risk/reward wasn't as appealing.

Best wishes to holders.

Kind regards,
GHF

[buffetteer] 18/3/2016 11:22

Thx v much both .As you say a small price to pay...

[sportbilly1976] 18/3/2016 10:53

I would say that the earn out targets on both acquisitions are (I would imagine) fairly ambitious - so if they were to be paid in full, then the earnings enhancement would easily offset the potential dilution concerns

[nehpets81] 18/3/2016 10:18

Good question, there is a maximum amount payable if the acquisitions hit their targets and a fair value scenario.

The fair value situation as I understand it is a contingent consideration of £4.5M for the Colemans acquisition and a further £2.3M relating to the Simpson Millar acquisition so if we halve these we get £2.25M and £1.15M respectively. The issue share price for the Colemans consideration is 132p and Simpson Millar 141p. So, the total number of shares likely to be issued for these is about 2.5M.

For the maximum possible it is 3.7M shares. Given the total number of shares in issue is currently about 46.8M, this represents a maximum dilution of nearly 8% with a fair value dilution of nearer 5%.

This is not ideal, but the debt levels are at the upper limit of what I would be comfortable with and given the decline in all of FRP's other markets, this dilution is necessary in my view.

The above is all fairly quickly worked out so may contain errors!

[buffetteer] 17/3/2016 17:03

Could be quite a lot of dilution if earn-outs are paid half in shares - but I don't know how much dilution -views ?

[montyville2] 17/3/2016 16:43

Good webinar about the results and future plans - recommend holders to catch up with this if it is available on the company website.

[sportbilly1976] 17/3/2016 16:06

No impact to P&L for 2-2 1/2 years as result of autumn statement re whiplash cases

[sportbilly1976] 17/3/2016 15:28

anyone owning up to that 100k top up? :)

[rivaldo] 17/3/2016 15:04

Cheers speedsgh, good to see.

Interview with the CEO here suggests further acquisitions are on the way:



"While much of the boost in legal services turnover can be attributed to the firm's recent acquisitions, organic underlying growth was at 4% for the period. Fairpoint chief executive Chris Moat told Legal Business the company now has a strong operating platform to build out from and is on the hunt for acquisitions. While Fairpoint has a target list of law firms in the double digits, Moat would not name the firms he is talking to.

Moat said Fairpoint is on the hunt for two types of acquisitions; the first category being simple transactions which would boost the ABS in terms of economies of scale – such as small firms of 10-20 partners without succession plans.

He added: 'The second type is more strategic acquisitions which develop our business model – the kind of things we are looking at, to be up there with the top five consumer law firms, would be family law and public law, if you take family as a sector you need local representation and we don't have full coverage of the UK yet.'

Moat acknowledged it was important to bed down recent acquisitions first but added: 'There is quite a bit of turbulence in the market which has affected a number of our competitors and that will throw up some opportunities for us.'

The firm, which will release its first unified marketing campaign in Spring under the Simpson Millar brand, indicated it is not concerned by proposed changes in the Autumn Statement to whiplash claims, given it only makes up 8% of the firm's total business. In any event, Fairpoint said its recently acquired legal processing centre, means that the firm can manage such legal work at low cost."

[speedsgh] 17/3/2016 13:45

Simon Thompson (Investors Chronicle) has today reiterated his RUN PROFITS stance in an update entitled 'Fairpoints worth making'.

[sportbilly1976] 17/3/2016 13:17

Hopefully a positive webinar this am and then further positive research notes after the analyst meeting this am to come

[carcosa] 17/3/2016 08:47

New note out (paid for) hxxp://www.equitydevelopment.co.uk/doc/1469.pdf

Couple of interesting comments:

1) Whiplash claims: '...if major insurers move from in-house process to an outsourced arrangement, in which case it could provide a growing revenue stream.'

2) FY16 forecast revised down by 0.2p to 19.6p (FY15 19.3p) but that is without any further acquisitions which we know is going to happen. Provided earnings enhancing (rose coloured glasses?) then an additional positive.

CEO & FD in Webinar TODAY at 3.45pm.

[hastings] 16/3/2016 19:58

Couldn't resist the company!

[cwa1] 16/3/2016 12:43

LOL. Add one more modest buyer from this am's drop.

[rivaldo] 16/3/2016 12:33

I also bought in this morning for the first time on the overdone drop. Good to see the likes of GHF, paleje et al already here!

[sportbilly1976] 16/3/2016 11:24

sp of 200p puts it on a P/E of 10.5, not especially a challenging one.

bought in this am

[paleje] 16/3/2016 10:27

PMG reiterated their 200p buy target this morning. Wouldn't be surprised to see IC comment later, ST has followed this one, his stance as of a few weeks ago was 200-220.

[glasshalfull] 16/3/2016 09:10

Good post carcosa. I've also taken advantage of the price weakness to buy in this morning.

Perhaps investors looking back rather than looking forward???

Regards,
GHF

[carcosa] 16/3/2016 08:54

Duplicate post. Sorry

[buffetteer] 16/3/2016 08:48

Good article in FT today P4 on 'machines set to take over 114,000 law jobs'.

[masurenguy] 16/3/2016 08:43

I don't think so wilk1 ! Sales moving up strongly, eps up by 12% and dividend up by 6%. The market may have focused initially on the negatives, with an increase in debt (but this due to acquisitions) and "continued difficult market conditions anticipated for debt solutions resulted in non-cash impairment of goodwill in the IVA segment". This resulted in a £9m write-off, which was a non-cash adjustment, and "difficult market conditions persist for our debt solutions activities" just added some salt to that measure. However net cashflow improved by almost 40%, at 151p the current PER is just under 8 and the yield is 4.5%. Clearly the initial drop reflects the more marginal negatives but this should be more than offset by the more significant positives in due course.