Insolvencies aren’t good news, unless dealing with them is a part of your business. That’s the case at Begbies Traynor Group (LSE: BEG), and I reckon it helps make it a good contrarian investment in these troubled times.
In fact, the Begbies Traynor share price has gained 80% over the past five years, with a 12-month spurt inspired by full-year results in 2017. And a trading update Thursday added a couple of percent to the price, with the company telling us it has “continued to deliver earnings growth reflecting the benefit of the strategic investments we have made in recent years.”
The firm offers business recovery, financial advisory and property services, and reported a 6% increase in government insolvency statistics. That’s helped boost insolvency appointments to 7,915 in the six months to June 2018, from 7,462 in the same period last year.
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Healthy cash
Earnings have been growing steadily for the past few years, and the dividend, which had been held flat, was lifted in 2017 and is predicted to grow further this year and next. Analysts expect a yield of 4.3% by the year to April 2020, which would be around 1.8 times covered by forecast earnings.
That looks safe to me, from a company with net debt at April 2018’s year-end of a modest £7.5m — that was down from £10.3m in 2017, and represented the company’s lowest debt since 2007. It’s a strongly cash generative business, and I see a tempting long-term dividend prospect here.
Progressive dividend
In Charles Taylor Consulting (LSE: CTR), I think I see an overlooked progressive dividend prospect. The annual cash handout has been lifted year-on-year, and yielded 3.9% in 2017. Forecasts suggest that will grow to 4.4% this year and 4.7% next, while the stock’s P/E multiple is predicted to drop to under 11.
At the interim stage at the end of June, revenue was up 21%, adjusted pre-tax profit gained 10%, with adjusted EPS 11% higher, and the interim dividend got a 5% boost.
Net debt was up at £52.7m, which does concern me a little. But acquisitions during the half were funded by an oversubscribed share placing, and that implies healthy confidence in the business to me.
I do agree with my colleague Rupert Hargreaves who has suggested the business can be misunderstood, and I can’t help thinking many just see it as being in that dodgy insurance business and are keeping clear.
Profitable services
But what Charles Taylor is doing is offering services to the insurance sector, so it’s not directly exposed to insurance risk itself. And it’s another of that class of ‘picks and shovels’ businesses that I expect to do well, whoever is winning at the sharp end of an industry.
I see this as a company with good repeat business prospects, but also with the ability to make smart acquisitions when the conditions are right. I’m seeing it mainly as an income pick, but a 39% share price rise over five years, coupled with that low P/E valuation, suggests further growth prospects too.
