Shares of these 2 global stocks could soar over 30% as bankruptcies begin to rise, analysts say
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Company insolvencies are on the rise in Britain , and analysts are expecting two U.K.-based consultancies to be major beneficiaries. Begbies Traynor , the largest corporate insolvency practitioner in the U.K. with its 13% market share, and FRP Advisory , the second largest, are both seeing increasing demand for their services as rising interest rates, high inflation and supply chain problems exert pressure on companies. FRP last week said the company had 8% annual organic growth to £104 million ($133 million). Earlier in the month, Begbies Traynor beat its rival and delivered a double-digit annual growth rate. The insolvency process — known as “administration” in the U.K. — is equivalent to a Chapter 11 bankruptcy in the United States. Insolvency practitioners are brought in when a company enters the administration process to oversee the failed company for the benefit of its creditors. Sticky inflation in the U.K. — the highest among the Group of Seven — has forced the Bank of England to raise rates to pre-financial crisis levels over the past 18 months. The higher cost of borrowing has meant that the number of companies collapsing every quarter has risen to its highest levels since 2009, according to the U.K. statistics agency . Begbies Traynor Analysts expect Begbies Traynor’s core insolvency division to benefit from rising U.K. insolvencies as economic conditions worsen. “The group’s five-year track record (doubling revenue; tripling adjusted profit before tax) demonstrates its ability to perform throughout the cycle, while, looking ahead, rising UK insolvencies against a progressively challenged macroeconomic backdrop should act as a clear growth tailwind,” said James Bayliss, equity analyst at investment bank Berenberg. “We understand Begbies has sufficient capacity within its headcount to benefit from increasing insolvency activity, and we also note its growing reputation at the higher end of the market.” Bayliss expects the stock to rise by 31% to £1.70 over the next 12 months. BEG-GB FRP-GB YTD line Analysts at Canaccord Genuity and Stifel echoed that view, saying that Begbies Traynor is strongly positioned, with over 80% of revenue derived from counter-cyclical insolvency services. Both investment banks expect the stock to go up by about 40% over the next 12 months. FRP Advisory Group As for FRP Advisory Group, Stifel noted that the firm expanded its market share in administrations over the past five years and is experiencing rising demand for restructuring services. “Given the significant pressures facing UK corporates highlighted above, we see scope for administration volumes to rise to at least historical average levels over the coming years,” said Stifel analyst Sam Dindol, who has a price target of £1.60 — or 35% upside — on the stock. “Given its market leadership in administrations, FRP is well-placed to benefit from the expected uptick in volumes.” Berenberg also sees growth potential in FRP Advisory’s non-insolvency business segments. The bank raised its forecasts for the firm’s earnings for the rest of the year and expects FRP’s stock to rise by 47% to £1.75.
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