Begbies Traynor Group PLC

Begbies Traynor Group PLC (BEG) is a Manchester, United Kingdom-headquartered business recovery and property services consultancy which provides independent professional advice and solutions to a wide range of clients, with clients ranging from small businesses and professional advisers to large corporations and financial institutions. It is the leading Corporate Rescue and Recovery practice in the country and provides advisory in areas of corporate recovery, security risk, investigations, forensic accounting, corporate finance, and restructuring and turnaround to major banks, independent accountancy practices, law firms, as well as directors and shareholders. The operations of the business are differentiated in two operating segments, namely Business recovery and financial advisory services, and Property services.

Recent Development
The company on 21 October 2019 announced the acquisition of Ernest Wilsons & Co Limited and of Ernest Wilson's (West Yorkshire) Limited, a leading UK business transfer agent, which would enhance existing transactional support services provided by Eddisons and is in line with the strategy to develop selective acquisitions to enhance expertise and service offering.

Financial Highlights (FY 2019, in £m)
 
(Source: Company Filings)

Representing an overall increase of 14.5% in the year, of which 5.9% was acquired and 8.6% was organic, revenue in the year increased by £7.7 million to £60.1 million (2018: £52.4 million). Revenue from business recovery and financial advisory services increased by 13.2% to £43.3 million (2018: £38.3 million) and revenue from property services increased by 18.2% to £16.7 million (2018: £14.2 million). Operating profit (before amortisation and transaction costs) increased by 24.7% to £7.6 million (2018: £6.1 million) and due to the benefit of operating leverage and increased segmental margins in both divisions, operating margins increased in the year to 12.6% (2018: 11.6%). As a result of the increased operating profits with interest costs in line with the prior year, adjusted profit before tax increased by £1.5 million to £7.1 million (2018: £5.6 million), an increase of 26.7% in the year. Basic earnings per share increased to 2.2 pence (2018: 1.3 pence) and adjusted basic earnings per share increased by 22.5% to 4.9 pence (2018: 4.0 pence). As cash generated from operations in the year was £7.3 million (2018: £7.5 million), net debt at the year-end was reduced to £6.0 million (2018: £7.5 million).

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary
 
Daily Chart as at 24-October-19, before the market closed (Source: Thomson Reuters)

On 24 October 2019, at the time of writing (before the market closed, GMT 09:08 am), BEG shares were trading at GBX 87.16, up by 1.32% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 88.50/GBX 56.00. The company's stock beta was -0.13, reflecting a weak inverse relationship with the benchmark index. Total outstanding market capitalisation was around GBP 108.14 million, with a dividend yield of 3.02%.

Conclusion
The group operates in a highly competitive market and is reliant on the flow of new assignments, which is dependent on macroeconomic movements, such as interest rates, GDP changes and indebtedness levels, which are not in the control of the group. Profitability levels are liable to short-term fluctuations which are dependent on activity levels as it incurs a high proportion of salary and property costs, which cannot be immediately varied. Moreover, there is currently uncertainty in the UK economy as a result of the Brexit process, which might impact the recruitment and retention of high-quality professional partners and staff and affect the new business of the group.

Based on the above rationale, we have given an “AVOID" recommendation at the current price of GBX 87.16 (as on 24 October 2019, before the market closed).
 

LoopUp Group PLC

LoopUp Group Plc (LOOP) is a Software & Computer Services company providing high-quality remote meetings solution. The company is focussed on providing enterprise professionals with better and productive user experience with quality, reliability and security.
Financial Highlights (for the six months period ended 30 June 2019, £million)

(Source: Interim Report, Company Website)
In the first half of the financial year 2019, the company’s reported revenue increased by 86 per cent to £22.35 millionas compared with the corresponding period of the last year. Gross profit rose by 67 per cent to £15 millionas compared to £8.9 million in H1 FY18. Adjusted EBITDA increased by 32 per cent to £3.5 millionagainst the £2.7 million in H1 FY18. Adjusted operating profit stood at £1.2 million,an increase of 29 per cent against the £0.9 million in H1 FY18.  Adjusted diluted earnings per share stood at 1.1 pence in the first half of 2019as compared to 1.7 pence in the first half of 2018.
Share Price Performance
Daily Chart as at 24-October-19, before the market closed (Source: Thomson Reuters)
On 24 October 2019, at the time of writing (before the market closed, GMT 12:31 pm), LoopUp Group PLC shares were trading at GBX 66, up by 0.76% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 405/GBX 46. Total outstanding market capitalisation was around GBP 36.19 million.

Valuation Methodology
 

Conclusion
The unpredictable nature of the macro and political environment makes it hard to project the near-term progress of average usage, which is much linked to the overall economic activity of the clients. In the financial year 2019, the company’s revenue growth will be around 26 per cent and EBITDA margins will be around 15 per cent.The company witnessed strong product demand.The company’s projects in the pipeline are healthy and provide confidence to the company to deliver robust growth in future.In a dynamic market, the company has a highly differentiated value proposition. The company has a reliable client base that is highly involved with the product, and that is increasing despite challenging macro and political headwinds.The group will continue to invest in an effective distribution engine to boost speed.The company’s software provides users with a superior meeting experience with improved engagement and security. The company remain excited and confident in the product’s ability to create future growth.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from £8 million in FY14 to £34.21 million in FY18. Compound annual growth rate (CAGR) stood at 43.80 per cent.

Based on the decent financials and growth prospects, and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 64.50 (as on 24th October 2019, at 1:10 PM GMT), with single-digit upside potential, based on 17.30x Industry Median NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*Peers of Begbies Traynor Group PLC are OneSavings Bank PLC, Secure Trust Bank PLC, Provident Financial PLC, Paragon Banking Group PLC and Exponent Inc.
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report as on October-24-2019.

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