Interactive Investor

Fairpoint extends amazing rally

3rd September 2015 14:34

Harriet Mann from interactive investor

The acquisitions of Simpson Millar and Coleman have primed Fairpoint for its transition from legacy debt management into a legal services business. And, after a good first six months and a strong second half on the cards, the company now yields 4% following another hike in the interim dividend.

Sales jumped by nearly two-thirds to £22.9 million in the six months ended 30 June and adjusted pre-tax profit rose 21% to £4.1 million. Basic earnings per share rose 19% to 7.38p. Add back one-offs and reported pre-tax profit increased 27% to £1.3 million. Net cash generation reached £4.9 million from £1 million last year and debt fell by a third to £5.2 million. An interim dividend of 2.45p is up 7% on last year.

Showing off its new shape, Fairpoint boasted that legal services is now its largest division, representing 49% of total revenue. On a proforma basis, it reflects 62% of group sales.

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"The transformation of the business into a broad-based and innovative legal services business now looks well embedded," said WH Ireland analyst Eric Burns. "Last year's acquisition of Simpson Millar (delivering annualised revenues of over £20 million, followed by Fosters in July 2014) and the more recent Coleman's acquisition, have created a significant platform in this growing and fragmented market."

Fairpoint chiefs reckon they're ready for a strong second half, too, benefitting from the purchase of personal injury expert Colemans last month. Sorting out access to a £25 million financing facility will also help drive growth through further acquisitions, with cost control boosting margins.

Up 3% to 176p on these figures, Fairpoint shares have risen 70% since February and now trade at their highest since early 2008. However, the relative strength index (RSI) suggests they are now temporarily overbought.

"The shares are up some 37% since we first heralded these developments earlier in the year but FRP remains an intriguing situation in our view, trading on a full year PER of just 9.4x versus the recent Gateley IPO on 11x," added Burns.

Gary Greenwood, an analyst at Shore capital, thinks Fairpoint shares "remain well underpinned at the current price of 171p".

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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