Begbies Traynor (LON:BEG) is a favourite value share of mine, and I reported on it originally here in early July. At the outset, in the interests of full disclosure, I hold shares in this company.
Today I went along for their interim results presentation, given by the CEO and 29.5% shareholder, Ric Traynor, and FD Nick Taylor. Begbies website is here.
They are the market leader insolvency practitioners for small to medium corporate insolvencies, and have 7% of the overall insolvency market. They are the only pure play insolvency practitioners Listed in the UK, most competitors are partnerships, operating much like firms of lawyers, with the international Big 4 dominating the larger corporate insolvency market (Price Waterhouse Coopers (the firm I trained with), KPMG, Deloittes, and Ernst & Young).
You might expect the insolvency market to be buoyant, but it isn't - because Banks and HMRC are under political pressure to keep unemployment down, hence with low interest rates, many "zombie" companies are continuing to trade, whereas in previous Recessions they would have been put into Administration.
So the point is that, at some point, Begbies are likely to see a long-term surge in business once the zombie companies are eventually broken up. The trade body called R3, estimates that there are 160,000 UK zombie companies, so this is a big issue.
Interims today were pretty soft - turnover down just over 10% to £26.1m for the 6 months, but continued staff reductions mean that adjusted profit before tax was £3.2m (cf. £4.1m last year H1). H2 is the seasonally stronger period, so it looks to me as if full year EPS is likely to come in around 5-6p.
Bear in mind that the shares are only 32p, and you can see that they look cheap, on a current year PER in the 5-6 range.
Dividends are a key attraction here - the interim divi is maintained at 0.6p, and when I asked them about sustainability of divis, mgt were emphatic that it is their intention to maintain the current progressive dividend policy, so that should mean about 2.2p for the full year, giving a cracking…
