Investment Column: Begbies Traynor should be in its element

Lamprell; RAB Capital
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The Independent Online

Our view: Buy

Share price: 113.25p (-7.25p)

Cometh the hour, cometh the company: this is surely the time for great things from Begbies Traynor, the insolvency and restructuring specialist. With thousands of businesses expected to hit the wall during what will officially become a recession on Friday when the latest chronic set of GDP figures are released, Begbies Traynor should be like a pig in mud.

The group's stock closed down 6 per cent, however, after half-year numbers highlighting an adjusted pre-tax profit of £3.7m, up from £2.8m in the same period last year, and a 31 per cent hike in revenues from insolvency work.

So why the nervousness from investors yesterday? The group's other arm is a corporate finance division that thrives on merger and acquisition transactions, which are typically the product of a bull market. The group described that market as "highly challenging", adding that the division lost £1m in the reporting period.

Investors should note the company has restructured its loss-making arm and that the shares have risen nearly 20 per cent in the past 12 months. With high barriers to entry and a huge amount of insolvency work heading its way, Begbies Traynor is likely to have a good 2009. The group should be considered a safe pick, and executive chairman, Ric Traynor, reckons the share price is too cheap, with between 150p and 160p a more realistic level.

Watchers at Brewin Dolphin are a little more circumspect. "We have reduced our price target from 150p to 140p to reflect declining market valuations. 140p equates to an April 2010 price-earnings ratio of 15.5 times, a rating which, although high in context of the market, represents the countercyclical nature of the revenue streams in insolvency and the many opportunities the current economic conditions should create."

Begbies Traynor is going to get lots of good press in the next 12 months and, with the rest of the economy seemingly on its way south for the foreseeable future, this should be a time to buy, notwithstanding the unimpressive corporate finance business. Buy.


Our view: Hold for now

Share price: 90p (+2.75p)

Lamprell's shares have been through the mire in the past year and unfairly so, says finance director, Scott Doak. The Middle East-based oil services and engineering group, which announced its full-year trading update yesterday, was the victim of hedge funds forced to sell the stock, reckons Mr Doak, and as a result it has seen a 75 per cent loss in the value of the stock over the past 12 months.

The saving grace for investors is the shares trade on a price-earnings ratio of around 3 times, according to watchers at Finncap. Couple that to the $612m (£447m) of contracts on the order books, which Mr Doak says are secure, and the fact Lamprell has more than $80m in cash and no debt and there is a compelling case for buying the stock.

Those at Finncap, however, are "concerned at the ability of customers to finance chunky projects. We would be a buyer of Hunting in preference as a less risky play, with acquisition potential." Mr Doak hits back that they are working with customers like never before to ensure cancellations are avoided, and that the whole sector is subject to the same risks.

The problem for investors is that the market considers this to be a particular problem for Lamprell. It is indeed true that rivals such as Hunting and the Wood Group have suffered share price falls in the past year, but nowhere near as heavily as Lamprell. It is also true that, as the younger and smaller Turk, Lamprell will always get a rougher ride from institutions which consider the bigger companies as a safer bet.

Lamprell's stock is undervalued and investors could do well from buying today. We would be inclined to wait, however, until there are signs that the company is getting an easier ride from the market. Hold for now.

RAB Capital

Our view: Avoid

Share price: 9.75p (+0.45p)

A cursory glance at hedge fund firm RAB Capital's trading statement yesterday would suggest investors should run a mile. Assets under management, the key indicator of success espoused by such groups when all is fine, were down a colossal 74 per cent to $1.9bn.

The chief executive, Stephen Couttie, would rather point to the fact yesterday's update confirmed the group is still profitable and generating positive cash flow. In fairness, this is not insignificant.

The problem is neither Mr Couttie nor his communications chief are prepared to say the worst is over. RAB's share price has fallen more than 85 per cent in the past 12 months. While RAB is doing what it can to weather the storm, there seem few catalysts to improve things in the short term. Avoid.