If you haven’t already grabbed a slice of Begbies Traynor Group (LSE: BEG) then you should give it serious consideration. With the UK economy on the precipice of a shocking contraction this is one wise share to buy for your ISA.
It gives me no pleasure to say this, but it’s clear that many businesses will go to the wall. It’s a scenario that promises to jump-start sales at insolvency practitioner Begbies Traynor.
A fresh survey from Simply Business illustrates the awful outlook for small and medium enterprises (SMEs) due to the pandemic. Of the 3,700 firms the insurance specialist questioned, 41% of said that they fear their business faces permanent closure.
The lion’s share of these companies (37%) believe that they may be forced to shut up shop within 12 months. Some 4% of small business owners have already closed their doors for good, too, Simply Business says. If representative of the whole of the UK this would translate to an eye-watering 234,400 closures.
Profits power
Begbies Traynor itself expects the number of firms experiencing severe financial distress to balloon. It said last week that “whilst the timing of a return to normal economic conditions remains unknown… we do anticipate progressive increases in the number of insolvencies”. It added that “we expect that our mix of service lines and counter-cyclical focus places the group in a strong position” as well.
The AIM company is one of the country’s biggest insolvency specialists. This is what makes it such a brilliant ISA buy. A steady stream of acquisitions has seen it build scale and bolster the range of services it offers. It now operates out of more than 70 offices the length and breadth of the country.
A mix of Begbies Traynor’s commitment to M&A and already challenging economic conditions helped adjusted profit before tax surge 31% in the last financial year (to April 2020). And, pleasingly, the company has plenty of financial firepower to continue on its earnings-bolstering expansion programme. Strong cash generation helped net debt more than halve year on year in fiscal 2020, better than it had been reckoning on.
A top ISA buy
In this climate it’s not a shock that Begbies Traynor’s share price has rocketed. It initially got washed out during the broader stock market crash in late February, sure. But it surged more than 80% in value during the following five weeks to hit record closing peaks around 112p per share. Yet it’s still not eye-poppingly expensive on paper, the company sporting a forward price-to-earnings ratio of around 17 times.
Some light profit-taking means that it has fallen slightly in value. But I fully expect it to resume its upward path sooner rather than later (and possibly as soon as when full-year results are published in mid-to-late July). I’d happily buy Begbies Traynor for my ISA and hold it for years to come.