BEG’s positive FY24 update reiterates the inherent reliability of its business. Both revenues (up 12% at c £136m) and EBITDA are expected to come in ahead of market expectations, adj. PBT in line. The latter reflects relatively subdued corporate finance M&A volumes and expenses related to investment in its teams and IT support. This kind of overall momentum keeps the group on track to build its top line revenue towards c £200m over the next three to five financial years, the components of which we set out in detail in our last note.
In essence, we expect more acquisition led and organic growth which has driven the last three years with BEG to add capacity, geographical reach, and market share in its core disciplines.
Strong balance sheet and cash generation
The four acquisitions completed in FY24 added c £5m to FY24 revenues (£9m+ pa on an ongoing, pro-forma basis), and built insolvency and property advisory operational capacity and geographical profile. Their integration is progressing well and all trade in line with expectations.
Period-end net debt was £1.4m (FY23: £3.0m net cash). Cash generation in Q4 was better than anticipated and helped absorb £8m of consideration related to acquisitions, £3m of EBT share purchases. A £35m debt facility provides flexibility with respect to further investment; BEG extended this by £5m during FY24 on terms broadly in line with the previous agreement.
According to the update both divisions grew materially y-o-y on the back of acquisitions and organic growth. Business recovery and advisory was c 7% up, property advisory and transactional services by c 25%. The latter saw all its core disciplines - valuation, asset sales and consultancy - pick up pace. The c 13% expected revenue growth by business recovery reflects higher activity levels across all case sizes and that operation is well placed to capitalise on market growth. It added to team capacity in FY24 via acquisitions and recruitment, held its market share and remains the UK insolvency market leader by volume. Nationally, insolvency market volumes are increasing as higher interest rates and inflation has keep UK businesses under pressure.
Considerable latent value not reflected in the equity valuation
We reflected on BEG’s plans to leverage its consistently reliable growth template in our prior note and how this can generate material growth in revenue/earnings. We have broadly held our forecasts, other than bringing FY24e revenues into line with the update and will add FY25e post the results on 9 July.
Shares in BEG have recently tracked sideways whilst revenue and earnings have progressed. We regard the ratings awarded by the market as lagging behind events and hold our view of a 175p/share fair value.
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