What factors led Begbies Traynor Group to proceed with its biggest insolvency deal by acquiring CVR Global LLP for £20.8 million?

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What factors led Begbies Traynor Group to proceed with its biggest insolvency deal by acquiring CVR Global LLP for £20.8 million?

 What factors led Begbies Traynor Group to proceed with its biggest insolvency deal by acquiring CVR Global LLP for £20.8 million?

Summary

  • Begbies Traynor Group Plc had reported revenue growth of 11% during H1 FY21 ended on 31 October 2020.
  • The Company had completed its biggest insolvency deal by acquiring CVR Global LLP for £20.8 million on 18 January 2021.
  • The net cash balance stood at £0.7 million as of 31 October 2020.
  • The Board had declared an 11% increase in the interim dividend for H1 FY21.

Begbies Traynor Group Plc (LON: BEG) is the FTSE AIM All-Share listed financial stock. The Company is one of the most prominent provider of services such as business recovery, financial advisory and property services consultancy. On the basis of last one-year performance, BEG’s shares have generated a return of about 17.22%.

The Company will provide its detailed Q3 FY21 trading update in March 2021.

Business Model

The Company provides several financial services through a comprehensive network of UK locations. The several business segments are briefed below -

  • Corporate and personal insolvency – The Company is handling the highest number of insolvency appointments, mainly focusing on mid-market and small companies.
  • Financial advisory – It encapsulates a wide range of services such as debt advisory, financial restructuring, due diligence and forensic accounting.
  • Corporate finance – The Company render support services on buy and sell-side corporate transactions.
  • Valuations
  • Property consultancy, planning and management
  • Transactional services – It involves transaction such as sale and purchase of property, plant & machinery and other assets.

 

Some of the brands through which the Company render its services are –

(Source: Company presentation) 

Acquisition History

The brief description of all the acquisition made by the Company since 2014 has been briefed below –

(Source: Company presentation)

Acquisition Update

On 18 January 2021, the Company announced that it had completed the acquisition of CVR Global LLP for an amount of £20.8 million. The transaction includes initial cash consideration of £12.0 million to be sourced from the Company’s existing financing facilities. The Company had projected its net debt to be around £11.0 million after funding this transaction. This transaction would support the Company to increase its market share towards financial advisory segment and business recovery segment. It is expected to be the largest insolvency acquisition of the Company. The market share regarding new insolvency appointments stood at 10.4% as of 31 October 2020, while it was just 2.8% as of 31 October 2018.

CVR is an independent organization having a wide variety of professionals such as forensic accountants, insolvency professionals and engaged in services like corporate restructuring, distressed asset advisory, asset recovery and business disputes. CVR had generated total revenue of £9.5 million and pre-tax profits of £1.2 million for the fiscal year ending on 31 March 2020.

H1 FY21 Financial Highlights (for six months period ended 31 October 2020, as on 08 December 2020)

(Source: Company result)

  • The Company had delivered robust financial performance by showing revenue growth of 11% from £33.8 million during H1 FY20 to £37.5 million for the first half of FY21.
  • The Company had demonstrated strong adjusted profit before tax growth of 25% to £5.0 million during H1 FY21.
  • The net cash balance stood at £0.7 million as of 31 October 2020.
  • On the liquidity front, the Company had a significant headroom comprising £25.0 million of unsecured and committed revolving credit facility and £5.0 million of uncommitted acquisition facility.
  • The Board had declared an 11% increase in the interim dividend for H1 FY21 driven by the strong business performance from last three years.

Segmental Update

(Source: Company result)

Business Recovery and Financial Advisory – This business segment had delivered 13% growth in revenues from £23.0 million during H1 FY20 to £26.1 million during H1 FY21 driven by the healthy contributions from the acquisitions completed in the prior year. The operating margin rose from 21.1% during H1 FY20 to 25.1% for H1 FY21. 

Property Advisory and Transactional services - It had shown a jump of 6% in revenues from £10.7 million during H1 FY20 to £11.3 million for H1 FY21 due to the positive impact of organic growth initiatives taken by the management. The operating profit had reduced to £1.6 million adversely impacted by Covid-19 pandemic. 

Share Price Performance Analysis of Begbies Traynor Group Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Begbies Traynor Group Plc were trading at GBX 109.50 and were up by close to 3.79% against the previous closing price as on 19 January 2021, (before the market close at 10:00 AM GMT). BEG's 52-week High and Low were GBX 117.00 and GBX 57.33, respectively. The market capitalization of the Company is around £134.92 million.

Business Outlook

The Company had forecasted its financial performance during H2 FY21 to show the same level of resilience as it did during its first half of the fiscal year. The Board had anticipated another year of growth for FY21. The Government had aided many companies and supported them by arranging funds despite the economic downturn due to the emergence of Covid-19 pandemic, which had significantly reduced the number of insolvencies since March 2020. However, the Company had forecasted a rise in insolvencies once the support measures are lifted.

The Company had witnessed a decent recovery in its Property Advisory and Transactional services business segment following an economic slowdown and business challenges due to Covid-19 pandemic. The Company had expected this segment to carry the positive momentum in the near future and remain unaffected by the current challenging environment.

 

 

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