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Begbies Traynor expects activity pick-up

The coming months are likely to be testing for small-scale UK companies, and beneficial for the insolvency practitioner
December 20, 2018

Begbies Traynor (BEG) may not boast Deloitte’s client list, but its status as the UK's largest insolvency practitioner for smaller- and medium-sized businesses gives it an unparalleled insight into the health of a significant slice of corporate Britain. Currently, it’s not looking good.

IC TIP: Buy at 68.4p

“There does seem to be deterioration particularly in consumer-facing businesses,” says executive chairman Ric Traynor. “Whether that’s negative Brexit sentiment, or it was going to come anyway, it’s hard to say, but certainly we’ve seen insolvency numbers pick up.”

That rise in appointments, together with first contributions from Springboard corporate finance and CJM Asset Management, has been good for Mr Traynor’s firm. In the six months to October, adjusted pre-tax profit jumped 10 per cent to £3.2m, which allowed Begbies to pay down its debt and lift the half-year dividend. Further acquisitions are still on the radar, and can be targeted with a cheaper banking facility.

That facility should also help support any possible strain on working capital in the coming months. Even if Brexit is well managed, Mr Traynor expects “some businesses to struggle in some industries”, while a disorderly no-deal exit could be so severe as to damage the insolvency process itself, and hampering the possibility of selling on distressed assets.

On average, analysts expect adjusted earnings per share of 4.35p in the year to April 2019, rising to 4.76p in FY2020.

BEGBIES TRAYNOR (BEG)  
ORD PRICE:68.4pMARKET VALUE:£73.7m
TOUCH:66.2-68.8p12-MONTH HIGH:77pLOW: 62p
DIVIDEND YIELD:3.7%PE RATIO:62
NET ASSET VALUE:50.1p*NET DEBT:11%
Half-year to 31 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201726.00.950.30.7
201828.00.600.10.8
% change+8-38-67+14
Ex-div:11 Apr   
Payment:9 May   
*Includes intangible assets of £57.8m, or 52.4p a share