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Positive half year report. Upbeat on Future earnings and profits, Dividends to be paid quarterly. What’s not to like about this stock?
Still no dividend payment. Hopefully today or tomorrow
Has anyone received their dividend payment yet ?
Great post Rokerpark.
Selling when I did was clearly the right move, it's gone south since. But it's now reaching a level that's looking rather tempting.
Do we know when we can next expect to have news here?
So overall I remain keen on FRP, despite the dip since the results yesterday, for the following key reasons, which, of course are merely my own opinions and investors should always do their own research.
• As we know, the corporate restructuring market will be strongly in favour of FRP’s offering over the next year or two.
• As a result there could be some material profit upgrades over the current financial year, especially as the UK government’s support packages are reduced.
• FRP has cash to continue growing by acquisition and has no debt.
• The partners are aligned with shareholders (as long as the Board’s Remuneration Committee does its job!).
• Dividends will be paid quarterly in due course and could be at attractive levels (i.e yield of 3%+?)
• Senior management is proven and experienced.
• Lock-ins are in place for two years.
• The IPO allows for the incentivisation and retention of talent below partner level through sensible FRP share schemes.
• FRP has no audit arm which could cause conflicts in restructuring mandates. They are “independent” in that sense.
Hope you find this interesting.
Rokerpark68
Libero / Forensic505
I thought your exchange yesterday was very interesting – I hope you don’t mind if I add some comments and analysis of my own over two posts.
Partnerships which convert to listed vehicles do raise some difficult issues, especially around partner remuneration.
The FRP partners have traded their full annual profit pay-out model as partners, the historic financial impact of which is illustrated on page 37 of the IPO prospectus, for a reduced annual income (see “Incentive Arrangements” commencing on page 21 of the prospectus) but hugely increased liquidity for their previously illiquid partnership holdings in the form of FRP shares, some of which they sold as “Selling Shareholders” at the point of IPO (see page 78 of the prospectus) and some of which they still hold (subject to certain sensible lock-up provisions as outlined on page 25 of the prospectus). They are therefore aligned with other FRP shareholders in that they have an interest in increasing the capital value of their current shareholdings and maximising dividends to make-up for the dismantling of the full annual pay-out partnership structure.
In terms of EBITDA, on page 11 of the prospectus we have been provided with pro forma numbers showing what EBITDA would have been historically if the revised remuneration arrangements had been in place for the partners since the FYE 30 April 2017 and had replaced the full pay-out model. This produces pro forma EBITDA numbers for the FYE 30 April 2017, 2018 and 2019 of £11.2m, £15.5m and £13.9m respectively. In yesterday’s results announcement for FYE 30 April 2020 the equivalent adjusted EBITDA number for the full 12-month period was £18.5m (second bullet point in “Financial Highlights”). This represents good growth versus the £13.9m pro forma figure for FYE 30 April 2019 in the prospectus.
Libero, I agree the EV/EBITDA figure looks high at the moment. I calculate it as EV = market cap £284m less cash of £21m = £263m divided by EBITDA of £18.5m = 14.2x. However, given this is a capital-light business a very high proportion of EBITDA converts to PAT, so the P/E multiple will appear far less extended. Based on Cenkos’s forecast for FYE 30 April 2021 of EPS of 5.6p (which assumes almost no revenue growth versus FYE 30 April 2020), the forward P/E is 120p/5.6p = 21.4x. I took the Cenkos forecast number from this morning’s buy recommendation article for FRP in the Investors Chronicle.
With regard to EBITDA for FYE 30 April 2021, we know from the annual results that March and April (the two months after IPO at the start of March) produced total EBITDA of £3.5m (fourth bullet in “Financial Highlights”). So that’s an annual EBITDA run rate of 6 x £3.5m = £21.0m for the FYE 30 April 2021 compared with £18.5m for the FYE 30 April 2020. I don’t think Cenkos’s EPS forecast for FYE 30 April 2021 reflects that sort of EBITDA/PAT growth – but I don’t have their report.
No problem, would recommend you read some of my posts on this board earlier in the month, because it shows my thought process to investing here in the first place. As I've admitted, I got the PBT after partner deductions wrong, which means my ratio calcs are wrong, but what I've said about the business itself is correct and convincing I believe.
Btw it looks like we've ended today @ 120p. As someone who bought beneath this level but topped up at about 10p higher, I'm rather frustrated with myself. V disappointing day, but I'm very hopeful for the future here.
Libero,
Your "conflict" point is excellent. Thank you.
Forensic505,
Thanks for your measured response. My feeling is that those 2 months were strong for the 2019/20 period, but will look average compared to the months that have followed, and poor compared to what it'll be like by the time the govt stops propping up so many businesses.
I'm bullish for the sector as a whole, and I'm bullish about FRP because it seems to have increased market share (partially as a result of the Big Four having conflicts of interests given that they were often the auditors for these companies now struggling).
Can understand what you're saying about moving from a LLP to a Plc. However I've not seen how this plays out before. I haven't even heard of Vantis so will clearly have to do some googling.
Will let you sleep on this and have a good ponder, and look forward to your thoughts in the coming days
Best of luck to you whatever you decide :)
Libero,
As you state below, very rightly, this whole two months approach is rather darn confusing ! Can we simply annualise the two month profit ? We just dont know how representative those two months are (they could have been unusually good or mediocre). Difficult....I will need a lie down first before I decide on your question !! :-)
My gut feel is that FRP will be on a very good run. Government is suppressing insolvencies using furlough and bounce back etc so I expect FRP to get more busy once those measures are withdrawn. 2021 should be very busy and 2022 possibly more so.
As I mentioned below, I think my fundamental concern though is this tension between the old LLP (where the partners took all the profit and cash every year) and now its a PLC and they have to share that with external shareholders. FRP is the old Vantis Plc and we know how that ended - yikes !! I think (most) the listed Law Firms also face the same difficult tension....its a huge cultural gear change moving from Partnership to PLC.
Forensic,
Thanks for sharing your thoughts/concerns. I didn't realise that the profits in the prospectus didn't take into account the partners payments, so feel a little silly to be honest. You did the right thing holding fire. However, now that it is clear that profit before tax after deductions is £2.9m suggesting £17.4m on an annualised basis, and likely to increase by another 25% in the current financial year, and another 25%+ in the year thereafter, are you tempted to buy in / are you looking for an entry point?
Maybe I was being thick but when I read the prospectus the financials seemed to stop before deductions to partners, so I couldnt see the bottom line profit for external shareholders. Without that transparency I couldnt invest. Today is the first time we see profits after deductions for partners payments....
Separate but related point: now we see the full numbers it seems to me the partners pay has been reduced (slightly) to report a desired profit number. Maybe it is more scientific than that but that is how it appeared to me.
I think Begbies has always struggled with this tension between a traditional LLP Partnership Structure and a new PLC status. Sadly I think the same might be playing out here.
I could be completely barking up the wrong tree and dyor as ever. Just my honest observations.
Tbh I'm not too sure why they did that, but whatever, it's all linked to the IPO so it's a one-off.
One thing that threw me off somewhat is the Partners profit sharing allocation that seems to hit the profit before tax figure. It means the EV/EBIT ratio is about double what I expected it to be, if I'm honest.
Having said that I still think this is a fantastic combination of being a growth share, a share with defensive qualities due to its sector (so important to have in the portfolio to recession-proof it somewhat), and it looks as though there will be 4% yield too. There's a lot to love there.
Morning Libero.
I think the two month reporting period for earnings post-IPO has indeed thrown some investors.
I think the SP will come back fairly quickly.
The announcement was fine.
because they've only declared figures for 2 months not 12.
"The Group's reported profit before tax for the year is £2.9 million, which arose in the c.2month period to year end."
The dividend of 0.66p is for those 2 months of earnings, not 12.
Can't understand why else the market has reacted so badly to these results.
Looks as though the 2020/21 FY has got off to a very strong start, and that's despite all the government support, indicating the 2021/22 years and beyond will see even more growth.
Annual revenues of £100m by 2022 look very achievable = which would be 58% higher than what has been announced today.
"Outlook
For many businesses across the UK, their resilience was, and continues to be, tested as the country went into lockdown to manage the impact of the global pandemic. There remains a significant degree of uncertainty around the shape and scale of economic recovery, combined with potential additional pressure as the Brexit transitional agreement comes to an end in 2020.
The support measures made available to both firms and individuals by the UK Government in response to COVID-19 has reduced the number of appointments in our financial Q1 compared to prior year. Despite this, trading for the period since year end has been in line with expectations and we remain confident of making further progress in the current year. We have maintained steady growth and utlilisation rates by continuing to secure larger projects and market share, while sharing resources across our office network.
In a recessionary environment, there will naturally be higher levels of corporate financial distress, which depending on a number of factors - such as creditors' attitudes to forbearance - have historically led to an increase in insolvency volumes. We believe there should be an increase in restructuring assignments at all levels across the business community as the various UK government support mechanisms are phased out and the impact of Brexit is also felt across the wider economy when the current transitional agreement concludes.
With a significant and growing market share, FRP is well placed to service increasing levels of restructuring assignments in the UK, both on increasingly high profile, complex cases and across regional businesses through our national network. This is further supported by the breadth of our skillset across our service lines, including forensics, corporate finance, debt advisory and pensions advisory.
FRP is a resilient business with a track record of growth throughout the entire economic cycle and a strong balance sheet which will enable the Company to continue to grow both organically and through the acquisition of teams. We have a structure that provides a good level of flexibility in our internal capacity, allowing us to be well positioned for an increase in demand for our services, the medium-term outlook for our markets is positive and the Board remains confident of making further progress in the current year."
However it is only for 2 months of earnings (see below).
Had it been for 12 months, the dividend would have been 3.96p.
On this basis, I expect the dividend to be about 5p next year. Suggesting a 3.8% yield at this level.
Dividend
In line with its stated strategy at the time of the IPO, the Directors expect the Group to continue to be cash-generative and accordingly, the dividend policy reflects the long-term earnings and cashflow potential of the Group. The Directors' stated dividend policy is to pay a 70% overall dividend.
In respect of the Group's trading in the two-month period from the date of its IPO to the end of FY20, the Board declared a dividend of 0.66 pence per eligible ordinary share. To enable payment of this dividend, a dividend was paid up from a subsidiary to the company post year end.
OK someone with some deep pockets has discovered FRP Advisory, having made a £181k buy today!
25-Aug-20 09:03:37 132.1584 137,500 Buy* 130.00 133.00 181.72k
Roker,
Yes I read the IPO prospectus when I first bought. Read it again and in more detail and have since tripled my initial holding. Because it reads ever so well. For all the reasons I've detailed on this board previously.
: )
Tenth largest holding in The DIverse Income Trust (DIVI).
Just bought some more - re-reading the IPO prospectus has made me feel even more confident that this is a well-run, stable business which has an excellent market opportunity given the state of the economy.
Rokerpark68,
Completely agree. A maiden dividend should really help catch the market's attention. Another share (called Base Resources) announced their maiden divi just the other day and it jumped 25%. Wouldn't be surprised if we do the same here ... which would bring me to my immediate term target of 160p+ actually! (Not saying I'll sell at that point, this is merely what I expect)
The risk vs reward at this price level is incredible. A complete no-brainer at these prices and the state of the economy.
Dividends could be attractive over the next year or two. The IPO prospectus states that dividends are planned to be 70% of net profits and that the company is moving to quarterly payments in 2021. Smaller company income funds may well look closely at the opportunity.
The overall risk/return profile does look good at the moment IMO.
Really looking forward to the results.
Rokerpark - thanks for your post, it's good to speak with a fellow investor here, and yes totally agree! It's weird this share haven't attracted more attention but I believe that will change, and this Thursday's Final Results could well be the catalyst to send this flying!
Will look to make another top up to bring my average closer to 130p in the next couple of days : )
More business wins
Debenhams’s Parent Company appoints FRP Advisory for its own administation
https://www.retailgazette.co.uk/blog/2020/08/debenhams-owner-on-brink-of-administration/
Also FRP have been appointed to advise on the 'London Capital and Finance' administration
https://www.moneymarketing.co.uk/news/mini-bond-collapses-administration-fees-face-questions/
They seem to be making the news with more and more business every week or two. So much must not be making the news.
And, sadly, the worst is yet to come!
Libero - I agree that there is some good value here even after the decent rise post IPO. The company is in a sweet spot just now and they must have tremendous momentum in terms of new business wins. The SP is surely heading north over the coming months. I have bought twice over the last few months at around 125p. I am very surprised the stock hasn't attracted more attention.