Begbies' leaner, but the market's meaner

As the UK flirts with a third dip into recession, business should be booming for insolvency specialist Begbies Traynor (BEG), as cash gets tight for companies on life support. But it isn't. Record low government interest rates and banks reluctant to realise losses on loans have caused insolvency levels to fall 10 per cent on last year, according to government statistics. Ric Traynor, chief executive of Begbies, said he hasn't seen an insolvency market like this in 28 years, as he revealed a 21 per cent slump in underlying pre-tax profits to £3.2m in the half year.

To survive in this surreal environment Begbies has been adapting by restructuring the business. The costs of which wiped £1m off profits. Still, the business does look in better shape. Net debt has been cut by a third to £18.3m in the past 12 months and net cash flow from operations reversed from an outflow of £700,000 in the first half last year to a £2.3m inflow, which easily covers the £500,000 first half dividend. Begbies is getting leaner as well: insolvency staff have been cut from 466 to 449, which helped protect margins. In fact, operating margins rose 30 basis points to 25 per cent compared with the second half of the prior year.

Broker Cannacord Genuity forecasts full-year adjusted pre-tax profits of £7.4m and EPS of 5.7p (from £7.3m and 6p in 2012).

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