FRP Advisory is in an increasingly sweet spot

Half-year figures from FRP Advisory (FRP) fell in line with the recent submission by industry peer Begbies Traynor (BEG), to wit: the rise in corporate debt and administrations is now fuelling growth in business advisory services. This seems to have been a lagged effect, given the succession of interest rate rises has taken longer than expected to place a demonstrable strain on corporate balance sheets.

Aim-traded FRP increased revenues by a fifth, with organic sales rising by 16 per cent. Underlying cash profits were up by a third to £15.5mn, while cash collection showed an 8 per cent increase to £56.3mn. Sheffield-based Wilson Field was acquired towards the end of the reporting period, but its incremental annual contribution to the group is pitched at revenue of £5.6mn and cash profits of £1.1mn.

The number of administration appointments more than doubled in the period, while market share in administration appointments rose to 20 per cent. Corporate finance and financial advisory volumes were also on the rise.

Increased business translates into increased commitments, so the number of FRP fee earners, including partners, increased by 15 per cent to 484. The number of colleagues, excluding consultants, grew by 16 per cent to 622. The upsurge in activity is also reflected in an improved utilisation rate.

Trading remains positive, and the board believes the group will trump consensus for FY2024. It is guiding for revenue of £123mn and cash profits of £32mn. At 16 times consensus earnings, the shares look a little rich compared with Begbies Traynor, but given an implied dividend yield of 3.7 per cent and signs of further financial stress in corporate UK, we retain our buy recommendation. Buy.

Last IC view: Buy, 159p, 13 Dec 2022