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The specialist advisor is well positioned to prosper as a subdued market for insolvencies and administrations should soon pick up
Thursday 16 Sep 2021 Author: Mark Gardner

Insolvency and business advisory firm FRP Advisory (FRP:AIM) should be a beneficiary of a rise in insolvencies and administrations as the Government brings to an end pandemic-linked insolvency restrictions.

Firms in financial distress thanks to Covid have been protected from action by creditors since June 2020 but that broad-based protection ends on 1 October, to be replaced by a more targeted regime, mainly supporting smaller companies.

As a result the market is likely to witness a gradual increase in firms becoming insolvent or entering administration and FRP is well positioned for any increase in activity.

The valuation looks attractive. Based on Liberum forecasts the stock trades on a calendar year 2022 price to earnings ratio of 15.9 times, which the broker says compares with 16.7 times for the wider legal sector and 17.6 times for the administration and advisory space.

Established in 2010 through a management buyout of accountancy output Vantis, the company provides services across five areas: restructuring, corporate finance, debt, forensic accounting and pensions.

INCREASE IN MARKET SHARE

FRP has performed well despite a subdued market and has successfully taken market share over the last decade from both the so-called ‘big six’ accounting firms (PwC, Deloitte, EY, KPMG, Grant Thornton and BDO) and its closest listed peer Begbies Traynor (BEG:AIM).

Liberum’s research shows FRP’s market share has grown from 2% in 2010 to 11.9% in 2020, based on the volume of administrations (which are the most lucrative type of business). There are several factors that have facilitated this increase. In marked contrast to its larger counterparts FRP has no conflicts of interest (from acting for clients in another capacity), and is able to price at a more competitive rate.

FRP is also perceived as being a high quality operator, reflected in its selection for increasingly high profile jobs like the one arising from the collapse of department store chain Debenhams. The group benefits from greater scale than the majority of competitors in its part of the food chain, while enjoying a large referral network.

Government support schemes during the pandemic have prevented insolvencies that under normal circumstances would have occurred. According to July figures from the UK Insolvency Service insolvencies were 34% lower than 2020 and 58% lower than 2019.

Begbies Traynor’s Red Flag Alert report for Q2 2021 suggests there are 650,000 firms in the UK in significant distress and court action is picking up as creditors become more aggressive in chasing debts.

According to Begbies Traynor, County Court Judgements lodged against companies during the second quarter of 2021 were up 90% year-on-year to 14,460.

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