Wednesday 24 January 2018 ShareProphets: The one stop source for breaking news, expert analysis, and podcasts on fast-moving AIM and LSE listed shares

Begbies Trading Statement - downgrade stance but sure don't sell!

By Tom Winnifrith & Steve Moore | Thursday 9 March 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Business recovery and property services group, Begbies Traynor (BEG) has updated on its third quarter (to end January), including that “we are encouraged to see some (insolvency) market stability”.

This has helped improvement, as anticipated, in the company’s insolvency business activity, complemented by its property services business and seeing “expectations for the year as a whole remain unchanged”. However, it is added that “our work in progress in both the insolvency and property services businesses includes a number of engagements with fees contingent upon completion prior to the year end”.

Full year expectations are for earnings per share to have further recovered from a prior year 3.2p and a maintained 1.6p per share final dividend, retaining the annual payout at 2.2p.

These compare to a current just over 50p share price – which doesn’t look a compelling value proposition, particularly with the noting of “number of engagements with fees contingent upon completion prior to the year end” suggesting potential risk to meeting earnings expectations.

However, the present are low-cycle earnings – with the noted insolvency market stability “at historically lower levels of activity”. We expect earnings to boom when the cycle turns and an attractive dividend is being paid while waiting. This counter-cyclical proposition sees us retain the faith here though, cognisant of the current earnings risk, we for now downgrade to hold for income.

But when the economy slows - as it surely will - earnings will zoom and so will the shares. So this is a useful equity market quasi edge to own and pro tem bank the dividends

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next TWO share tips from Tom & Steve within four weeks and ahead of a new shorting idea from Lucian Miers tomorrow click HERE


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