Berenberg raises target price on FRP Advisory

Analysts at Berenberg took a fresh look at the British insolvency services market on Thursday as it dissected the impact of the Labour Party's recent UK election victory on the sector.

Berenberg said the election, which gave the Labor Party a 167-seat majority and "a very public focus" on economic growth, may lead one to question if the UK was entering the early stages of a period of sustained growth, particularly given the recent acceleration in GDP in Q124.

"While this could prove to be true, a read-across expectation to a softening in UK insolvency activity is not so direct. Typically, changes in insolvency appointments materially lag prevailing economic conditions, while the UK economy (still in recovery mode) continues to slowly repay the large amount of government stimulus built up over the Covid-19 pandemic. Concurrently, individual businesses are facing, or are already locked into, materially higher funding costs," said Berenberg.

"Our analysis suggests that the UK is still at the early to mid-stages of a backlog of insolvency cases still to be realised, with many businesses still pursuing all remaining financing options available before declaring insolvency. Given this, we believe the listed insolvency practitioners still provide investors with exposure to industry-driven growth and returns."

The German bank stated FRP Advisory, the largest UK appointment taker for administrations, offers exposure to what it thinks will play out as accelerated structural growth. Berenberg raised its target price on the 'buy' rated stock from 200.0p to 220.0p.

As far as Begbies Traynor was concerned, the UK's largest appointment taker for liquidations has demonstrated "a strong post-pandemic rebound", now stabilising at elevated levels over the last two-and-a-half years. However, Begbies shares have "materially de-rated" since the turn of the year, currently standing at historically low multiples despite a positive recent trading outlook, indicating growth across all service lines.

"With solid forecast organic EPS growth, alongside M&A optionality required to meet a targeted £200.0m of revenue, we view current pricing as anomalous. We update our price target to 150.0p (from 170.0p) today," said Berenberg.

Reporting by Iain Gilbert at Sharecast.com