Begbies Traynor has now released their interim results for the year ending 2020.
Revenues increased when compared to the first half of last year with a £3.1M growth in insolvency & restructuring revenue and a £2.7M increase in property revenue. Direct costs also increased to give a gross profit £2.3M higher. Admin costs were up £1.4M, acquisition costs increased by £445K, deemed remuneration was up £692K and the amortisation of acquired intangibles grew by £279K, although there was a £1.9M gain on an acquisition which meant the operating profit was £1.3M higher. Finance charges were slightly lower but tax charges were up £121K to give a profit for the period of £1.3M, a growth of £1.3M year on year.
When compared to the end point of last year, total assets increased by £9.7M, driven by a £2.6M growth in unbilled income, a £3.8M increase in deemed remuneration, a £2M growth in intangible assets and a £1.7M increase in cash. Total liabilities also increased as a £2M decline in borrowings was more than offset by a £2.3M final dividend liability, a £1.5M increase in other creditors and a £1.2M growth in deferred income. The end result was a net tangible asset level of £4.7M, an improvement of £5.8M over the past six months.
Before movements in working capital, cash profits increased by £754K to £5.4M. There was a cash inflow from working capital and a marginal increase in tax payments to give a net cash from operations of £4.6M, a growth of £1.3M year on year. Of this, £4.4M was spent on acquisitions, £1.9M on deferred consideration and £329K on property, plant and equipment which meant there was a cash outflow of £2M before financing. The group issued £7.8M in new shares, paid out £1.2M in leases, £914K in dividends and paid back £2M of loans to give a cash flow of £1.7M and a cash level of £5.7M at the period-end.
The operating profit in the business recovery and financial advisory business was £4.9M, a growth of £1.2M year on year with a 13% increase in organic revenue. This reflects the continuing development of the division, increased insolvency market activity levels, a strong performance from the advisory team and the contribution from prior year acquisitions.
Insolvency volumes nationally have continued to increase, growing by 7%. In this improving market the group have maintained their market share. They have invested in the business recovery through the recruitment of fee earners with a focus on business development and increasing capacity, and have also appointed four new partners. They have also seen an increase in corporate finance transaction completions despite the economic uncertainty.
The operating profit in the property advisory and transactional services was £2.1M, an increase of £34K when compared to the first half of last year with flat organic revenues as returns from growth initiatives was offset by a reduction in revenue following the completion of several property insolvencies which enhanced margins last year.
The building consultancy team has continued to develop, notably with continuing growth in the education and wider public sector. They have continued to invest in the team which included the recruitment of a Cambridge based team in the period. Revenue from the property valuation team grew during the period, reflecting the recruitment of experienced surveyors which has improved geographical coverage. The property transaction teams have performed well, with activity levels broadly in line with the prior year but they have experienced a reduced level of activity from their heavy plant disposal team with lower market activity levels in the current economic environment.
Towards the end of the period the group completed three acquisitions. Alexander Lawson Jacobs is a London-based insolvency and business recovery practice and was acquired for £2.35M plus a maximum earn out of £4M contingent consideration; Ernest Wilson is a business sales agency operating across a broad range of sectors ranging from food outlets to care homes, restaurants and hotels, for an initial consideration of £4M plus £1.6M in contingent consideration; Regeneratus is an advisory practice with expertise in restructuring, turnaround and legal issues for an initial consideration of £500K and contingent consideration of £1.1M. Last year these three business generated pre-tax profit of £1.8M. In July they completed a share placing which raised net proceeds of £7.8M.
A proportion of the consideration payable requires post-acquisition service obligations to be performed by the selling shareholders. The amounts are accounted for as deemed remuneration and charged to the income statement over the period of the obligation. The value of assets acquired exceeds the value of consideration and consequently a gain of £1.9M has been recognised
Going forward, following a strong performance in the first half, the board remains confident of delivering results at least in line with current market expectations for the full year, including the benefit of contribution from the recent acquisitions. Overall they anticipate a further year of increased revenue and earnings.
At the current share price the shares are trading on a PE ratio of 42 but this falls to 15.2 on this year’s consensus forecast. After a 13% increase in the interim dividend the shares are yielding 3.1% which increases to 3.2% on the year’s forecast. At the period-end the group had a net debt position of £2.3M compared to £6.3M at the end of last year.
On the 30th December Company Secretary John Humphrey sold 35,000 shares at a value of £31.5K.
On the 8th January non-executive director Peter Wallqvist purchased 30,000 shares at a value of £26.4K.
Overall then this has been an OK period for the group. Profits are up, but this was due to a gain on acquisition; net assets increased, as did the operating cash flow, although no free cash was generated. The Business Recovery division is doing well due to the higher level of insolvencies but the Property Advisory division saw a flat performance. This is a decent hedge in my opinion given the anti-cyclical nature of the business and I think the forward PE of 15.2 and yield of 3.2% is about right.