MIDAS SHARE TIPS UPDATE: Begbies Traynor insolvency outfit branches out

The NHS is not just a health service, it is also a huge property business, whose estate would cover the City of London ten times over. There are community care centres, GP practices, offices and more than 1,200 hospitals, dotted around the country. 

Most sites are owned outright but some are leased from commercial firms so the NHS acts as both landlord and tenant.

Manchester-based Begbies Traynor is best known as an insolvency practitioner but the group has branched out into all kinds of advisory work in recent years.

That includes helping NHS executives to manage their property business more effectively, renting out space to shops, cafes and pharmacies, and ensuring that tenancy agreements are fair.

Begbies works with hundreds of schools too, advising them on upkeep and maintenance, from reducing carbon emissions to removing asbestos from buildings.

These contracts and others mean that Begbies derives about 40 per cent of turnover from non-insolvency businesses, such as helping firms to sell surplus machinery, buy property or expand their operations. 

Offering a range of services means that Begbies is better able to grow in good times and in bad.

Over the past five years, for example, turnover has doubled and profits have tripled, with dividends increasing steadily every year.

Chairman Ric Traynor is keen to repeat that performance over the next five years – and early signs are encouraging.

Sales climbed 11 per cent to £122 million in the 12 months to the end of April 2023 and profits were 16 per cent ahead at nearly £21 million, with brokers predicting continued robust growth.

Dividends are also on the up, rising 6 per cent to 3.8p in the year just gone, with 4p pencilled in for 2024 and 4.2p the year after.

Business is brisk across the group. Ultra-low interest rates helped keep struggling firms afloat, and Government support during the pandemic provided further comfort. 

Now the environment is much harsher. Bank lending rates are higher, costs are soaring and consumers are tightening their belts.

Second quarter insolvency figures rose to more than 6,300 in England and Wales – up 13 per cent on the same period last year – and Traynor believes the total will near the 2009 peak of 26,000 by next year.

Begbies is the number one liquidator in the UK and number two in terms of administrations, which are offered to firms when there is a chance of saving part or all of their business. 

Traynor works primarily with small and mid-sized companies, including some of the hardest-hit sectors today – construction, retail and hospitality.

Begbies has a reputation for fairness and many firms approach the group directly if they are in trouble. Banks are also less brutal than in the past so more companies can be salvaged.

Traynor, 63, co-founded Begbies in 1989, floated the firm in 2004 and remains the largest shareholder, with 17.5 per cent of the stock. 

Having grown the company organically and through acquisition, he intends to continue with that formula, while ensuring investors are rewarded with dividends too.

Midas verdict: Midas recommended Begbies Traynor in 2019 at 74p and looked again at the business three years later, when the shares had risen to £1.22. Today, the stock is £1.32. This seems too low. The number of insolvencies is increasing, profits are rising and ambitious growth targets have been set for the future. There is even a chance that external bidders might see value in this business. Existing shareholders should follow Ric Traynor’s example and stick with the business. New investors could also snap up a few shares at current levels.

Traded on: AIM Ticker: BEG Contact: begbies-traynorgroup.com or 0161 837 1700