Building service breadth, market share and margins

We see two stand-out messages from strong FY22 results which were, as had already been flagged, well ahead of original market expectations.

Firstly, they demonstrate once again that BEG can find ways to push up revenues and margins without any material assistance from higher numbers of insolvency appointments. The latter remains the major metric for the business, and total UK insolvency volumes are back to pre-pandemic levels. But a pick-up in larger, more complex (and higher value) administrations has yet to appear.

The second takeaway is reiteration that acquisitions are core to the growth strategy. Management has demonstrated its ability to identify, secure and successfully integrate substantial additions. With respect to the FY22 result, 24% out of 31% revenue growth was acquisition related and operating profit margins grew from 14.8% to 16.9%.

According to the statement, FY23 has also  begun positively. The group is confident that it will record further growth as it builds on a solidly performing base. Approx. 70% of the business remains geared towards insolvency work, a contracyclical input, so BEG is positioned to capitalise on the UK’s current economic struggles.

On the back of the group’s increased scale and service breadth we have increased our fair value estimate to 175p / share. That’s equivalent to 18.2x FY23e PER and reflects a deliberately conservative view, confined to organic growth. At that price the shares would yield a prospective 2.1% (2.6x covered by adjusted earnings).