Who benefits from the death of businesses during the lock-down? Corporate undertakers, that’s who. Maybe I should describe them as corporate ‘upcyclers’ since they recycle temporarily unusable assets and free any viable parts of the businesses from the bonds tying them to the moribund bits.
In every recession the rate of corporate insolvencies rises. And while Rishi Sunak’s extraordinary emergency measures will do a lot to bail out sound businesses, they will not persuade commercial banks to throw £billions of loans to companies that have negligible chances of repaying them.
Over just the last week, BrightHouse (the UK’s largest rent-to-own firm, already weighed down by claims for compensation on mis-selling) fell into administration because its chances of survival had become negligible – as did leading restaurant chains Carluccio’s and Chiquito. They are joining many other household retail names there, such as Laura Ashley, Soak and Beales.
Even before the Covid-19 outbreak, trading at Begbies was relatively encouraging with growing revenue, up 15%, in a rising market (corporate insolvencies in 2019 were 7% up on 2018) and adjusted profit before tax for the first half of 2019/20 up by one-third to £4.0m (IFRS PBT more than trebled in H1 to £1.9m); adjusted EPS rose more than 20% from 2.1p to 2.6p. The latest update on Q3, released on 3rd March, stated that they expect to meet current expectations for the current year (adjusted PBT of £9.4m and EPS of 5.8p).
In the Financial Crisis of 2009/10 a significantly smaller Begbies Traynor (it has since made a series of synergistic acquisitions) made PBT of £10.4m and EPS of 7.8p. Today’s expanded group should easily beat that in the fall-out from the lockdown.
