FRP poised for restructuring revival

Few companies talk about supply chain disruption, rising energy prices, labour shortages and inflationary pressures quite as cheerfully as FRP Advisory (FRP). The insolvency specialist could barely contain its excitement in its latest set of annual results, as it discussed the macroeconomic challenges that have emerged since the start of the year.

So far, however, businesses have proved frustratingly resilient. The UK restructuring market remained “subdued” in the year to 30 April 2022, partly as a result of government support measures. Even when the financial help was withdrawn, “the expected influx of corporate failures did not occur as lenders, government forbearance and available liquidity continued to provide a lifeline for many businesses”.  

As a result, FRP’s growth is still a little lacklustre. While revenue jumped by 21 per cent – 11 percentage points of which was organic – reported profits shrunk. A higher volume of voluntary and compulsory liquidations was offset by a 22 per cent decline in the administration market, which is more complex and thus more lucrative.  

Things seem to be picking up, however. Management noted an increase in enquiries for restructuring services in recent months, and analysts at Panmure Gordon expect administrations to rise this year and next. Given FRP’s stable market share of 13 per cent, it should be well placed to benefit. 

That’s not to say that FRP isn’t facing pressures of its own. Personnel costs rose by 26 per cent last year, despite its workforce only growing by 15 per cent. This weighed heavily on the group’s operating profit, which fell from £16.8mn to £15.6mn. As the insolvency market picks up, however, FRP’s strong market position, growing footprint and abundance of cash remain attractive. Buy. 

Last IC View: Buy, 124p, 27 Aug 2022