FRP Advisory (FRP:AIM) 164p

Gain to date: 34%

We originally recommended buying advisory group FRP at 122p on 16 September 2021 because we believed it would benefit from an increase in insolvencies as the Government ended pandemic-linked insolvency restrictions.

The company specialises in corporate restructuring and helps businesses navigate the process of going into administration or liquidation.

What’s happened since we said to buy?

The subsequent advance in the share price has been driven by a rise in the number of insolvencies and administrations since the start of 2022.

According to data from the Insolvency Service, total company insolvencies increased from 1,567 in January to 1,827 in July, with the majority of these being creditors’ voluntary liquidations. These have increased from 1,359 in January to 1,609 in July.

The number of County Court judgments filed by creditors trying to recover debts has also been on an increasing trend. This rebound has been boosted by a clearing of the Covid-induced backlog. The corporate finance division has also driven growth as FRP has benefited from the Spectrum and JDC Group acquisitions.

The former, acquired for £9.4 million, extended the group’s geographical footprint in London and the south. The latter acquired for £5.3 million provided FRP with a presence in the east of England and bolstered its forensic accounting footprint.

What should investors do next?

We recommend taking profits given the 34% share price increase coupled with the substantial re-rating in the earnings multiple.

In mid-September 2021, when we initially recommended buying FRP, it was trading on a calendar 2022 price to earnings ratio of 15.9. This now stands at 21.4-times.

The shares are no longer attractive from a valuation perspective given that management left earnings guidance unchanged at the full year results in July. Broker Liberum forecasts pre-tax profit and earnings per share growth for the current financial year (to 30 April 2023) of 5.6% and 3.9% respectively.

For the following year profit is expected to rise by 6.5% but earnings per share growth is forecast to be flat.

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