Effect of Whiplash Claims on Fairpoint

26th Nov '15 by WarrantStar

19 comments 18903 reads

Fairpoint is down 11% today possibly as a result of yesterday's statement by George Osborne about changes to legal procedures for injuries arising from motor accidents. I have been trying to get a handle on what effect this will have on Fairpoint. I haven't got any numbers but can report as follows:
Fairpoint has two divisions being Financial Services & Legal Services.

FINANCIAL SERVICES

6 brands mostly relating to debt management. There appears to be no exposure here motoring and personal injury claims.

LEGAL SERVICES

This is under the brand of Simpson Millar. They offer a whole range of services including areas like employment law, family law, conveyancing, etc etc. They also list Personal Injury as an area in which they offer a service.

The impression that I get from all this is that whiplash claims will not be a major area of business for them. However, it is still possible for the shares to be (incorrectly) marked down by people applying a broad brush approach.

I haven't done much research into this. I just though that I would share with you what I have found. However, if you are considering buying or selling Fairpoint, then you may wish to look into it further.

I hold Fairpoint and currently have no plan to sell it.

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Paul Scott

26th Nov '15

The company probably needs to issue a statement, detailing what percentage of its group turnover & profit comes from legal activities which might be impacted by the Govt's move. Markets hate uncertainty, so if in doubt, shares tend to sell off until there is some clarity.

Carcosa

27th Nov '15

I would hazard a guess that the reason Fairpoint (LON:FRP) is down 10% is in some part due to Paul Scotts' SCVR comment about George Osborne's statement. That, and the mess of Slater and Gordon has impacted FRP share price.. It cannot be denied that Paul's comments have an influence; particularly when he championed the share at the start of the year when the shareprice was considerably lower; that creates a following.

Personal injury claims are part of theirLegal services activities which provide a range of services with the main lines being family, personal injury and clinical negligence.

From FRP last AR the segmental report

	IVA	Debt Mgt	Claim Mgt	Legal	Total
Revenue	13588	8293	4501	11942	38324
Op. Profit	1051	3034	1384	1592	7336
Margin	7.7%	36.6%	30.7%	13.3%	19.1%

So what proportion are 'whiplash' claims i.e. below 5000? Even if its 20% of Legal services revenues that would imply a loss of profit ~£320,000 or 8%. That to me is a worse case scenario and given the expected growth in FRP anyway I would hardly call it a game changer. My gut fee is the real figure is around 2-3%

Personally I do not expect Fairpoint to issue any statement unless the share price deteriorates in a similar manner today; and even then I would not expect anything other than something along the lines of 'trading remains in line with management expectations'. The press will start to catch on and perhaps write a few articles over the weekend so lets wait and see where this settles. I suspect the share price may be relatively volatile over the coming days.

To me, today's price action is an example of herd mentality. There have been several investor video presentations by FRP in recent weeks which discuss the management view that there are numerous opportunities over the coming years. If anything, the opportunities are too numerous. The current share price, in addition to a reasonable yield and P/E offers an opportunity for those - ever so rare nowadays - long term investors to add to their position.

janebolacha

RNS issued this morning appears very reassuring:

27 November 2015

"Fairpoint Group plc ("Fairpoint" or the "Group")

Response to Autumn Statement

Fairpoint Group plc ("Fairpoint" or "the Group"), one of the UK's leading providers of consumer professional services (including consumer legal services), notes the comments made by the Chancellor in yesterday's Autumn Statement regarding personal injury claims. The Government's outline proposals, which remain subject to consultation, seek to restrict the ability for sufferers of minor whiplash injuries to claim compensation. The expected implementation timetable is April 2017 following a period of consultation in which the exact nature of the proposals will be defined. As such the proposed changes will have no impact on the Board's expectations of Group performance for the year to 31 December 2015 or for the year to 31 December 2016.

The notion of extending the small claims limit has been a topic of debate for some time and following the acquisition of Colemans LLP and its class leading Legal Processing Centre in August 2015, the Group has an operational capability designed specifically in anticipation of such changes. As such the Group is well positioned to take advantage of these market changes."

Brothersinarms

It doesn't actually say anything. All it says it that they won't be affected until the changes come into force. Ideally they could have disclosed what % of their legal services is whiplash related.

TangoDoc

Not only will the changes proposed not come into force immediately, they are only for consultation in any case. It seems an odd thing for the chancellor to be concerned about such a trivial matter in financial terms in the face of considerations that amount to billions so my suspicions are that this element of his statement was a window dressing designed to play to a particular public gallery. On that basis, this is likely to be the very last time we will hear of it.
On the very subject of whiplash injury, I have to declare some knowledge as one who, some years ago, performed examinations and provided expert witness reports for the courts. Because of that I was obliged to do a huge amount of research on the subject of acceleration/deceleration injury to the spine and it is a fascinating subject. I was appalled to discover that monkeys were dropped vertically, strapped to sleds up to an impact that dislocated their jaws. It was very clear that however disagreeable a fore and aft shunt might be, the worst of all was a side impact injury. Airbags have made a vast difference for front seat passengers while sleeping back seat passengers denied even a second of warning could be killed, even at relatively low impact speeds. Even 10 years ago, there was considerable scepticism about "whiplash" as an entity. I well recall a conference at Bart's Hospital with members of the legal and insurance professions to see how costs could be reduced. It was plain that there was little correlation between symptoms and any scientific tests so the entire problem of deciding who merited compensation and to what level was far from objective. It is my view that arbitrary legal limits for compensation are naive.

Rusty2

Its good Fairpoint (LON:FRP) have put out a RNS about the autumn statement but as Brothersinarms says it does not really say anything, only 2015 and 2016 will not be affected as this will come in in 2017. Yes if they had said PI claims only account for 5% of their revenue would have been better. They also acquired Colemans in August, now it seems Colemans does specialise in PI. "Fairpoint chiefs reckon they're ready for a strong second half, too, benefitting from the purchase of personal injury expert Colemans last month." So maybe that take over is not well timed?

I do hold shares in Fairpoint (LON:FRP).

shauniekent

1st Dec '15

I've read elsewhere that Fairpoint are open to more acquisitions and there may be value in buying small partnerships where the owners who have been in place for years are looking for an exit - Fairpoint bolt on and benefit from scale.

This reminds me somewhat of the description given to Judges scientific. Of course that multibagged over several years and i'm wondering if anyone sees a potential similarity here?

WarrantStar

2nd Dec '15

I don't know anything about Judges Scientific, but it looks likely to me that Fairpoint will make further acquisitions on the legal side.
One of the things that I like best about them is that they are committed to making their processes as efficient as possible. They won't just settle for doing things the way that solicitors are currently doing them. They will change the business processes so as to make them cheaper and better for clients and yet more profitable for the business.

ls2g08

7th Dec '15

FRP has fallen pretty hard over the last few days (down 8.5% at time of writing). The RNS doesn't seem to have quenched fears sufficiently. Are these subsequent falls purely delayed reactions to the announcement, or does the market know something we don't? I personally sold on the announcement as it just seemed to rephrase information I already knew, that they wont be affected in the years before the regulation change occurs. I do think it is an interesting stock and will possibly revisit once the dust has settled and it is clear what the affect is. While I may miss out on the gains from betting on the outcome, I think the payoffs are currently asymmetrical where a loss is more likely.

I think that quite a proportion of people that are selling are doing so just because the share price is falling. I will try to email their Investor relations and ask them for clarification about what percentage of their profits come from personal injury claims from motoring accidents.

Not sure why the price has fallen again but there was an article in IC mag last Friday changing from buy to sell but Simon Thompson recently advised to buy, so there is a conflict. I agree the RNS did not say anything which was disappointing, investors need more clarification. Re proportion of profits I would be careful as there has been a recent acquisition so that will not be included in the figures.

From another website someone posted

The Investors Chronicle article also said:-

"Fairpoint's response (to George Osborne's speech) was more bullish. The acquisition of Colemans in August had prepared it for changes to the small claims market, and could even allow it to benefit thanks to the margins and volumes at which it currently processes small claims. However, Simpson Millar, the law firm Fairpoint acquired in 2014, does offer PI legal services, generally focused on higher-value claims."

Given the above, if true, and what has already been mentioned about the changes I do find the impact on Fairpoint (LON:FRP) share price to be somewhat overly dramatic, if indeed this is the reasoning behind the share price action of late.

Having carefully listened to their presentations and looked at other listed competitors in the legal field and seeing that Fairpoint are currentlyon a P/E of 8 and yielding 4% I decided to make a meaningful addition to my existing holding today and see where we are in a year or so.

Perhaps the Christmas tipster press will pick it up as their pick for 2016 too :-)

Tortoise investor

I think shareholders should email Fairpoint's communications team at fairpoint@mhpc.com asking for clarification about the percentage of their revenues or profits related to whiplash or traffic accidents. The share price has fallen 25% from a recent high and I fail to believe that a quarter of their profits relate to traffic accidents - in part because if you look at the list of services provided by Simpson Millar it is large and whiplash only forms one part of traffic accident work.

I disagree. If companies keep responding to every share price movement then we will have numerous RNS's everyday. How can you expect FRP to say anything on a 'ruling' that has yet to defined with an implementation date at some point in the future with regard to a minority part of there current business which in all likelihood can be managed over the coming couple of years, especially when the company itself is undergoing significant changes in how it operates?

They have provided guidance over the next couple of years. What more can anyone reasonably expect unless you are asking them to gaze into a crystal ball?

I think people want to know their exposure, their RNS said nothing, if you look at Redde (LON:REDD) RNS, they said "Redde further notes that the activities of the Group which would be covered by legislation of the sort proposed by the Chancellor contribute less than 2.5% of the Group's revenue."

This is the sort of info. investors would like from Fairpoint (LON:FRP).

Without this investors are maybe concerned they are hiding something, without clarity the shareprice may well fall further.

19th Jan '16

Trading statement issued today stating:

"This category of business, on a pro-forma basis, represented approximately 8% of the Group's revenues in 2015. As noted previously, the Group believes that its recently acquired Legal Processing Centre positions the Group advantageously to manage such legal work at low cost."

So that would equate to a forecast £4.3m in revenues which is about £0.7m profit or around an EPS of 1.5p (?). I really don't think it's a big issue given management have had two years to plan for it.

Yes does not seem a big issue now, at least they have put a figure on it and the market likes that.

jonesj

The share price fell by about 33% after the government statement, in hindsight, perhaps rather over done for 8% of revenues ?

21st Jan '16

But yesterday, when all was going down the drain, FRP went up again.

Effect of Whiplash Claims on Fairpoint

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WarrantStar

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