Restructuring advisers Begbies Traynor (AIM:BEG) and FRP Advisory Group PLC (AIM:FRP) are "attractive investment propositions" following the release of the latest UK insolvency statistics last week, said analysts at Stifel.
Total annual insolvency volumes in England & Wales in 2023 were at their highest since 1993, with the rate of active companies entering insolvency at the highest level since the middle of 2014, number from the government';s Insolvency Service revealed.
Growth in insolvency numbers has been driven by lower-value creditors’ voluntary liquidations (CVLs), Stifel noted, though pointing out that compulsory liquidations are back to pre-pandemic levels as creditors pursue overdue debts, with levels of companies going into administration steadily rising.
"Whilst we see scope for the UK economic outlook to improve through calendar 2024 (moderating inflation, interest rates), we expect insolvency volumes to remain elevated as corporates face higher debt costs and wider headwinds," said the investment bank's analyst Sam Dindol.
"We view restructuring advisory focused firms Begbies and FRP as well-placed in this backdrop," he added, with balance sheet headroom for to conduct M&A.
The pair's shares both currently trade at a valuation discount to historical averages, the analyst suggested, with a 20% discount for BEG and 11% for FRP, which he believes "represents an attractive entry point" for investors.
Stifel has a 'buy' rating on both, with Begbies' market positioning and value creation potential from its £200 million medium-term revenue target, while FPR is liked for its strong momentum in administrations and near-term upside risk to estimates.