Small Cap Value Report (1 May 2015) - BEG, FRP, AST, JSG

Friday, May 01 2015 by

Good morning!

A fairly quick report today, as I've been summoned to a meeting in London this afternoon. For anyone interested, I've recorded the final Day 5 video update for my charity challenge, and the video morphed into a brief SCVR (from 5:10). It saved loads of time typing actually, so if people like the idea of a video format (without me being silly), then I could maybe supplement the main reports here with a video of opinions on other news that day? Let me know what you think. Thanks again for all the generous donations!

Begbies Traynor (LON:BEG)

Share price: 41.5p (down 13% today)
No. shares: 104.6m
Market Cap: £43.4m

Profit warning - I doubt that anyone predicted in early 2008 that interest rates would be reduced to near zero, and left there for seven years+, but that's what has happened. As a result, insolvency practitioners have had lean pickings. The only listed insolvency practitioner is Begbies Traynor, and as you can see, their turnover has fallen dramatically, and they've only maintained profits by repeated cost cutting. Analysts are predicting sharp rebounds in turnover (some of which is from acquisitions) but not much increase in profits;


Today Begbies reports that market conditions for them remain tough - corporate insolvencies are down 14% for the year to 31 Mar 2015. For calendar Q1 of 2015 the level was the lowest since Q4 of 2007.

This has caused Begbies to issue a profit warning today, saying that despite maintaining its market leading (by number of appointments, but not by fees) position, it will now perform below market expectations for y/e 30 Apr 2015.

Other comments sound reassuring - more cost cutting has been done, the recent acquisition of Eddisons has gone well, and the group is "comfortably within" its banking facilities.

Sounding a bit like the angel of death, Ric Traynor laments that so few companies are going bust;


Valuation - broker forecast for y/e 30 Apr 2015 is currently for 3.4p EPS, jumping to 4.7p next year. I don't know how much those estimates will come down, but it would probably be safe to assume that, as the warning has come right at the end of the year, that it's not a big miss. Perhaps 3.0p EPS?

That would put the shares on a PER of…

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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

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Fairpoint Group plc is a United Kingdom-based company, which provides consumer professional services, including legal services, claims management services and debt solutions. The Company has four segments: claims management, legal services, individual voluntary arrangements (IVA) and debt management plans (DMP). The IVA segment consists of the subsidiary company, Debt Free Direct Limited, which is an IVA that consists of a managed payment plan providing both interest and capital forgiveness. DMP services segment consists of the Company's subsidiary, Lawrence Charlton Limited, which provides DMP for consumers. Claims management segment provides a range of claims management services, including reclaiming payment protection insurance (PPI). The legal services segment provides a range of consumer-focused legal services with lines, such as family law, complex personal injury, personal legal services, and a legal processing center focused on both personal injury and conveyancing work. more »

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Johnson Service Group PLC is a United Kingdom-based company that provides textile rental related services. The Company is the supplier of workwear and protective wear. The Company operates through Textile Rental segment. The Textile Rental segment is engaged in the supplying and laundering of workwear garments and protective wear; linen services for the hotel, restaurant and catering markets, and high volume hotel linen services. The Textile Rental segment principally consists of workwear garments, cabinet towels, linen and dust mats, are initially treated as inventories. It operates Textile Rental business under the brands, including Apparelmaster, Stalbridge, Bourne and London Linen. Its market workwear rental business, providing a clothing portfolio to the workplace, supported by sourcing supply and aftercare service solutions. Its Johnsons Stalbridge Linen Services offers the laundry service to the hospitality sectors. more »

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  Is LON:BEG fundamentally strong or weak? Find out More »

5 Comments on this Article show/hide all

imranawan 1st May '15 1 of 5

Like the new glasses Paul and the video format.

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jraitt 1st May '15 2 of 5

Article in yesterdays Telegraph echoing what you have said about "zombie" Companies only surviving by "Low interest rates, banks' forebearance and leniency of HMRC ahead of election" They estimate 340,000 such Companies 3 times more than in 2009 recession. They predict interest rates to rise "towards the end of this year".
Perhaps a lag before profits begin to come through but surely one worth watching.

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mrwhits 1st May '15 3 of 5

Hi Paul,

Regards FRP.L, I'm a holder too, but after crunching the numbers from the last year end I must say that their debtor days look awful!

As per your balance sheet analysis I make debtors over 61% of turnover, current ratio a healthier (very) 2.37, so I guess those debtors are the delays in being paid for the cases they have running, and have had so for some time.

Given the current ratio I'm still holding, but with one eye on that figure next report.

I also make cf/ps slightly negative for the last full year(-4p), due to acquisition costs, which if you take them off I get something like cash flow positive per share of approx 18p.

Any thoughts on the above?



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Paul Scott 1st May '15 4 of 5

In reply to post #98022

Hi Mrwhits,

The business model of Fairpoint (LON:FRP) is different to most companies. So they don't sell goods or services as such, and collect the money in about 60 days later. Instead they have various activities where they receive a stream of payments over a period of time, e.g. for IVA cases, PPI claims, etc.

The nature of that work is that they have a very extended debtor book. Similar situation with Begbies Traynor (LON:BEG) actually, where they also rack up loads of costs, leave them on the balance sheet within work-in-progress, and then receive payment maybe a year later, when the case is closed.

There are risks with this type of business model - i.e. a big debtor book can contain hidden nasties, and you often need a helpful back to finance the big debtor book. But in both these companies cases, it's just the way their business model works.

So debtor days is not such a useful measure in these specific cases.

Regards, Paul.

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Highpeak 6th May '15 5 of 5

Hi Paul, I too like JSG and am considering adding to my current holding. Therefore, the share placing at 73p is of interest but it appears that it is only available to Institutional investors rather than private investors? I guess there may be a pull back on the day of issue (7th May) which might provide an opportunity.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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