Is National Accident Helpline a good investment call?

19th Nov '16 by Tortoise investor

13 comments 8632 reads

I think NAHL (LON:NAH) looks interesting, especially after recent falls. I am currently a holder. It is cheap (p/e of 6-7) and currently trading on a 9% dividend. The business is also easy to understand.

However, there are a number of risks to the business which is why it will probably only be a small, short-term holding for me. The biggest of these are proposed regulatory changes to minor whiplash injuries. NAHL (LON:NAH) hasn’t been clear about how this will affect the business but in its IPO documentation it did say the group focuses on “higher value” non-road traffic accidents. Even if the changes wiped out 40% of its PBT (see my guesstimates below) the share would still be trading on around 11x earnings at present.

I am not passionate about this share but I think the valuation and dividend looks attractive for a business that has been well run. So I thought I’d share my research. I’d welcome others’ views.

What is National Accident Helpline?
In its own words: NAHL is a marketing business focused on the UK personal injury (PI) market, advertising through its core brand, National Accident Helpline. Established in 1993, the group’s business has become the UK’s largest outsourced marketing services provider to the personal injury market, which generates c £3bn in fees generated mainly by law firms. The group’s core business model is based on enquiry origination through direct response marketing, connecting claimants who have been injured in non-fault accidents with specialist panel law firms (PLFs). It’s main cost is marketing.

The group’s Underdog character, launched in 2010, has helped promote the brand, which – the company claims – is one of the most recognised, most trusted and most searched in the UK. The group has built five panels of rigorously selected law firms, which pay for NAHL’s marketing and overhead expenses on a cost plus variable margin model, based on a predictive enquiry formula for the PLF’s individual geographic area and specialisation. In addition, NAHL receives commission from the sale of third-party products to the PLFs. The group’s brand media spend, marketing experience and PLF relationships are the main competitive barriers to entry. Many law firms do not have the expertise or levels of cash available to do national marketing campaigns themselves.

The…

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AnonymousUser252054

21st Nov '16

Thanks for flagging this company. To me it's looking like a 'special situation' as a result of the MoJ announcement (which was first muted a year ago so NAHL have had time to adapt). They seem to be robustly confident the impact will be slight, manageable and they can not only absorb the potential loss of business but maybe even profit from it. Even if their confidence is reasonable it's likely uncertainty will weigh on the price but overall, after pretty decent interims in September, and on last week's fall I'm in, like you, for the short term at least.

Connor Davidson

Great research. Thanks for sharing.

I've been doing a fair bit of work recently on consumer legal services businesses. I agree that NAHL is very good value at these prices. The whole sector is somewhat diseased at the moment but it's not terminal (excluding in the case of the loonies at Slater and Gordon that bought Quenron).

However there are other companies in the sector that are better value in my opinion. I would argue that although NAHL is very cheap, Fairpoint at £25M market cap is even better value. If Fairpoint had not been listed I would have been buying NAHL at these prices.

imranawan

1st Dec '16

NAHL (LON:NAH) have issued an RNS in response to the Government consultation, and indicated that underlying profits for 2017 will fall by £4m based on their projections. I note their divi policy is to pay out 2/3rds of their retained earnings in divide, so I would expect the dividend to be cut. SP is off by 17% as of this afternoon.

Anyone still holding? I agree with Connor, that Fairpoint (LON:FRP) look better value. The market obviously doesn't believe they'll achieve forecasts though as that's what the share price is telling us.

Tortoise investor

2nd Dec '16

Hi - firstly I'd like to apologise if anyone invested on the basis of my article! (Always DYOR etc). I was overly optimistic about the Government ditching their consultation after they trailed that's what they would do in the news. Obviously that leak was either inaccurate or the Government changed their mind. What I should have done was wait until after the autumn statement to see what they'd do - I might have missed out on any price rise if they had confirmed they'd ditch the consultation but I would have also saved myself from the current disastrous drop in SP.

On the plus side I am encouraged that NAHL (LON:NAH) has managed to already boost other areas of its business to more than compensate for a reduction in personal injury claims. However, I found the RNS a bit unclear. Imranawan - you say the £4m is the projected fall-out of the consultation but the RNS seems to suggest it might be more about the investment they'll need to spend to readjust their business model so the consultation might affect their revenue even further. Thoughts?

"The Board anticipates a reduction in 2017 Operating Profit compared with its previous expectations in NAH, the Group's PI subsidiary, of approximately £4.0 million which should be returned over future years as cases settle. It is anticipated that **such investment** will be a continuing feature of NAH's business model."

If it was just the £4m then EPS would be in the region of 15.5p going forward. However, I think the RNS is a bit unclear and that there may be another further impact of reduced revenues so I've decided to sell this morning until I'm a bit clearer what the actual impact is. I should have acted on the Stockopedia profit warning advice and sold yesterday immediately on the profit warning statement when it was c.170p for a while.

My single worst investment this year - oh well! I might revisit this if it goes lower to say 120p.

Hi Paraic,

Sorry to hear about the loss you've suffered with NAHL (LON:NAH). I don't hold thankfully, but do hold some Fairpoint (LON:FRP).

I agree the RNS issued yesterday and indeed the RNS issued on 17 November are unclear. I don't know whether they were intentionally meant to be unclear, but I appreciate some clarity when a company is warning on profits. My understanding is that 2016 profits will be unaffected, but that 2017 operating profits will be £4m lower in the PI segment. In 2015 PI equated to £15.5m of operating profits. In the recent interims PI operating profits fell slightly for the 6 month period to £7m, so if I annualise this to £14m and subtract the £4m I get to around £10m operating profits for 2017 for the PI subsidiary. I reckon they'll do £11-12m in operating profits for 2017 but, they do leave themselves wiggle room, as the longer term impact is contingent on the MoJ response to the consultation. You are correct that they've quantified the hit to operating profits but not to revenues which I suspect will also be hit.

Although they reiterated their commitment to the dividend, its dependent on underlying earnings, and as these will fall in 2017, the dividend will be reduced accordingly. I think there could be value in NAHL (LON:NAH), but at the current time there's just too much uncertainty for me to invest.

Ouch! I had assumed the initial fall to around 200p factored in pretty much what NAHL announced yesterday so it was a shock to see the SP take such a hammering since. It reminded me of the Redcentric collapse recently- so I obviously bought a load more this morning (fallen further since) : Ow!

Looking at the RNS, aside from the "exceptional investment of £1.7m by the end of 2017... The Board anticipates a reduction in 2017 Operating Profit compared with its previous expectations in NAH, the Group's PI subsidiary, of approximately £4.0 million which should be returned over future years as cases settle."

I might be wrong but I take this as an inclusive figure, that the operating profit will be down about £4m from the combination of less revenue and as income is invested to support claims under the new business model. Year end 2017 had a forecast of £20.1m operating profit. Market cap is currently standing (or should that be crawling?) at £63m, (138p).

I tend not to hold shares for very long but am contemplating a couple of years of trench warfare holding out on this one. I like the management and it has the big brand name. In the meantime, if I've understood the RNS correctly, I think I will be averaging around 6% once the divs fall to perphaps 10p/annum. We shall see.

MrX001

5th Jan '17

I had bought these on the initial fall so was caught out by the second fall. I'm left in a quandry now since I think the company is being vague about the effect of the new regulation. I do like the high dividend and low PE but experience has taught me that when things are unclear it's generally better to get out. Consequently I'm now out as part of my New Year clear out.

I've taken the same approach - better to wait for the dust to settle sometimes!

23rd Feb '17

Having finally sold Nahl recently (after reading the Naked Trader's new book, Trade Like A Shark) I immediately guiltily bought some back again after reading http://www.legalfutures.co.uk/latest-news/pi-refor...

Whereas the official Nahl response to the proposed regulatory changes was pretty poor the judicial submission was well argued, hard-hitting, and perhaps decisive in leading to the decision to scale back the original MoJ proposals.

From today, http://www.legalfutures.co.uk/latest-news/governme...

"The shift to differentiate between whiplash and other PI claims represents something of a victory for campaigners who focused on the harmful impact a £5,000 limit would have on those injured in the workplace in particular."

The changes will be introduced on 1 October 2018.

Taff6

5th Nov '18

Talking about sharks NAHL (LON:NAH) looks a little disjointed

This discussion post originated some time since, and I was wondering if interested parties are still out there. If so is NAHL (LON:NAH) now a genuine bargain at these levels or an accident waiting to happen?

Stocko algorithms

The Value rank flags a bargain

Good returns are indicated by all ratios

However the quality rank is in conflict, with the following all good

The quantitative analysis is pretty damming though

Another potential red flag is that NAHL (LON:NAH) announced a change of auditors on the 31 October, however it doesn’t seem that the heading tells the full story, as it would appear to be a forced change.

“KPMG LLP has today resigned by notice to the Company under section 516 of the Companies Act 2006 and has confirmed that there are no matters connected with it ceasing to hold office that need to be brought to the attention of members or creditors of the Company for the purposes of section 519 of the Companies Act 2006”. ?????

Could this be the next accounting scandal to hit markets or are we looking at a genuine bargain? Would be interested if anyone has any views, especially all of you forensic scientists out there?

Thanks to paraic84 for the original article.

6th Nov '18

Yes things have moved on since my original posting. I couldn't tell from the RNS whether they were just being a bit officious in their wording because they say 'has today resigned' following the announcement of a new auditor. It could be an amber flag but presumably companies change auditors every so often to get a better deal for example? (Others will have far more expertise on this than me). We do need to keep an eye on debt: "“We have bank facilities of £25m in place and at 30 June 2018 had net bank borrowings of £17.4m" (from recent results). Plus the business model it is moving to means cashflow won't be as good.

I bought back into £NAHL recently though because of two main reasons:

- Although it is difficult to price because its business model is changing in line with recently proposed regulatory changes, some of those regulations seem to get continually pushed back by government and I wouldn't be surprised if Brexit makes implementation even slower. In other words, I think its profitability over the next two years will be higher than the market is pricing it at the moment and in the meantime it has more of a chance to change its model.

- It pays out a high dividend that looks sustainable for now, although arguably should be spent on reducing debt.

This is only a small holding for me though and I won't be topping up at least until the next results as there are a lot of changes happening that I want to have a better understanding of.

7th Nov '18

paraic84
Thanks for your update, notice Paul has also looked at NAHL (LON:NAH) comprehensively, link below
https://www.stockopedia.com/co...
Think your comment ref: waiting for next results are very wise, would also be interested if Paul has a view on what appears to KPMG LLP resigning?

Is National Accident Helpline a good investment call?

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