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Insolvency practitioners are emerging from the shadows to become our new economic poster boys and gals. Press reports of the views of these open-heart surgeons of the corporate world have been rife lately as the tally of credit crunch casualties grows, and especially in the wake of the collapse of investment firm Dawnay Day.
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Indeed, it's been a long time since their words sounded quite so wise and prescient, or made such good copy. And with business failures likely to increase markedly from here (the second-quarter Red Flag survey from listed insolvency firm Begbies Traynor showed a near 700 per cent increase in businesses in a "critical condition" compared with 2007), we can expect to hear much more from these quarters. And for investors, the rising profile of this band of professionals highlights some interesting sub-sector bets for those of a pessimistic mind.
Among the stocks that represent something of a recession hedge at the moment is the aforementioned Begbies. It had a terrible 2007 due to the wide-spread availability of cheap credit which helped bail out many corporate ne'er-do-wells. In fact, management faced criticism for its decision to hold on to unoccupied staff in readiness for the coming bad times. But it's now picking up substantial amounts of work including the administration of airline Silverjet (see Show's over) and it looks like there will be much more to come. In anticipation of this, the shares have rocketed by almost 50 per cent over the last three months.
The share price performance of pawnbrokers, such as Albemarle & Bond and H&T, has been far less impressive, but they also look well set for a recession. And then there are the individual voluntary agreement (IVA) firms, such as debts.co.uk, which offer heavily indebted consumers a way of restructuring-out-of control loans in exchange for a fee from their creditors.
Based on the recent severe deterioration in economic sentiment and growing acceptance that we could face a drawn-out downturn, such niches look an increasingly interesting accompaniment to more traditional defensive sector bets.
For more SectorWatcher columns, see the SectorWatcher columnist home page.
For more articles on sector strategy, see the Sectors home page.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
