Begbies Traynor finally benefits from the insolvency lag

In October, Jemma Slingo assessed what had contributed to the somewhat disappointing share price performance of the listed insolvency specialists. A combination of runaway inflation and 14 consecutive rate rises should have provided fertile ground for the industry, yet she revealed that corporate UK had proved remarkably resilient in the face of the challenges, but qualified that statement with a warning that “grimmer times could be around the corner” — and so it has come to pass.

Half-year figures from Begbies Traynor (BEG) further bear this out. Begbies said the number of businesses going insolvent in the UK increased by around 17 per cent to 24,326 in the year to the end of September. That meant that revenue at its insolvency division grew by 17 per cent to £35mn, thereby prompting a boost in the headcount to meet the increasing workload. Group adjusted profits, excluding items linked to M&A, saw a double-digit increase to £9.9mn. Meanwhile, volumes of companies in administration are now approaching pre-pandemic levels, significant given the higher margins on offer through “larger and more complex instructions”.

The three businesses acquired since the beginning of the financial year are trading in line with expectations and have increased the breadth of the group’s service offering while strengthening its existing regional presence. M&A aside, the group recorded a creditable 9 per cent organic revenue growth rate, achieved despite a quieter market for its advisory teams.

Management anticipates further growth in insolvency activity and a broadly consistent second half for financial advisory. Property advisory and transactional service volumes also provide cause for encouragement. The expanded “breadth” is also significant from an investment angle in that it acts as a bulwark against potential overexposure to any one business area.

The forward multiple of 11 times consensus is down on where we were a year ago and appears undemanding given the 3.6 per cent implied dividend yield and the lagged increase in corporate insolvencies. Buy.

Last IC view: Buy, 133p, 11 Jul 2023