Fairpoint (FRP) is rapidly shifting away from sluggish insolvency work towards higher-margin and less cyclical consumer legal services. Legal accounted for 49 per cent of revenue in the six months of 2015, up from just 8 per cent a year ago, thanks to the acquisitions of Simpson Millar and Fosters. And last month's addition of Colemans - for just under four-times trailing cash profits based on the initial consideration - now means two-thirds of revenue comes from legal services.
Expect further dealmaking, says management. Fairpoint believes smaller companies in the fragmented consumer legal services market cannot compete with process-driven approaches to professional services. But future acquisitions, for which there is a "healthy pipeline", will only be made if Fairpoint can keep net debt at or below cash profit, identify targets that immediately boost earnings, and ensure that organic growth is maintained at a similar speed. A fall in debtor days shows cash conversion - always an issue for lumpy legal work - is improving, which should help fund deals.
Adjusted pre-tax profit jumped 21 per cent to £4.1m. One problem to watch is that profit is not yet keeping pace with sales as a result of substantial administration costs. These jumped 76 per cent year on year to £8.2m.
Broker Shore Capital is forecasting adjusted pre-tax profit of £10.5m for the full year, giving EPS of 18.4p (from £9.3m and 16.9p in 2014).
FAIRPOINT (FRP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 177p | MARKET VALUE: | £78.9m | |
| TOUCH: | 175-178p | 12-MONTH HIGH: | 177p | LOW: 107p |
| DIVIDEND YIELD: | 5% | PE RATIO: | 25 | |
| NET ASSET VALUE: | 102p* | NET DEBT: | 11% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 13.9 | 1.0 | 1.87 | 2.30 |
| 2015 | 22.9 | 1.3 | 2.33 | 2.45 |
| % change | +64 | +27 | +25 | +7 |
Ex-div: 1 Oct Payment: 23 Oct *Includes intangible assets of £32.2m, or 72p a share | ||||
