Pre 8 a.m. comments

Begbies Traynor (LON:BEG) have issued a reassuring trading statement. It is the only pure play insolvency practitioner on the stock market. You might imagine that they are busy, given the depressed economic circumstances, but this is not the case. A combination of near-zero interest rates, and a reluctance from banks to recognise bad debts, together with political pressure on HMRC to give companies more time to pay rather than forcing them into insolvency, has made it an artificially quiet time for corporate insolvencies. BEG has therefore had several rounds of cost cutting (mainly reducing its staffing level), which has enabled it to maintain a healthy operating profit margin in the teens of percentages.

Their Q3 trading update today confirms that trading is in line with expectations, that net debt is "comfortably within the Group's banking facilities", and that full year expectations are unchanged, although dependent on trading in the important Q4, and supported by a lower cost base.

 

So that sounds pretty reassuring. I've been buying more BEG recently, because it's a share I like for the 6.2% dividend yield, and a PER of only 6.3 based on current forecasts. which are for 5.65 EPS for the year ending 30 April 2013. Furthermore, BEG should benefit from an improving economy, which is likely to see increased levels of corporate insolvencies, as banks finally pull the plug on the huge number of zombie companies which are only servicing the interest on their debt, but will never be able to repay the capital.

I also flag up the selling overhang from Caledonia Investments is now almost cleared - they reduced to below 3% this week, and hence the shares could well rebound when that selling pressure finishes.

The high level of debt at BEG does not concern me, as it is simply an unsecured bank facility to finance the extended debtor book which is inherent with insolvency work. I'm hoping to see BEG rise to 50-60p, once the seller is cleared, from the current 35p.

 

Zytronic (LON:ZYT) is a company I like, having met them last year. It is a maker of specialised touch-sensitive screens for ATM and vending nachines, and anything else which needs a touch sensitive screen. They specialise in larger, and unusual shaped screens.

ZYT have…

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