Begbies boosted by liquidations

The market was underwhelmed by Begbies Traynor’s (BEG) half-year results: shares in the insolvency specialist dipped by 6 per cent in wake of publication. This might be to do with the state of the insolvency market. Management said the number of administrations in England and Wales – which are typically more complex than liquidations, and are thus more lucrative –  remain 35 per cent lower than pre-pandemic levels.

However, there is a lot to like in Begbies’ performance. For starters, the group achieved double-digit profit and revenue growth across both of its core divisions – business recovery and property advisory. As such, management is confident of hitting the market’s full-year forecasts. (The current range of analyst estimates for revenue is £118mn-£121mn, while adjusted profit before tax is expected to reach £19.7mn-£20.6mn)

The business recovery division – which also offers financial advisory services – is the biggest part of the group. It grew revenue by 10 per cent to £42.4mn in the period, reflecting strong organic growth and more companies falling into liquidation. (The number of corporate insolvencies in the 12 months ended 30 September 2022 increased to 20,731, 23 per cent higher than in the comparable pre-pandemic period).

Meanwhile, the property arm increased its sales by 18 per cent to £16.1mn, on the back of recent acquisitions. 

While investors may be disappointed that administrations remain low for the time being, the group is confident that things will pick up as bigger businesses come under pressure. Management suggested that, until now, many have been propped up by banking facilities, shareholders, and private equity investment.

By contrast, the cyclical parts of Begbies’ business could see demand soften. (Only about 70 per cent or so of the group’s revenue is counter-cyclical). The team that handles property transactions and online property auctions could come under pressure, for instance, as could the corporate finance division, which helps buy and sell good quality businesses.

However, management said demand has been robust so far, and stressed that there is a good deal of skills overlap, meaning staff can easily be moved from one team to another. 

We ultimately remain upbeat about Begbies’ prospects – particularly that of its insolvency arm, which has grown its order book by 15 per cent year on year. However, its property arm also looks promising over the longer term, with the group planning to make more acquisitions to help build its national presence. Buy.

Last IC View: Buy, 142p, 15 Sep 2022