In a booming market, FRP Advisory Group is a steal

The company's valuation does not take into account FRP Advisory Group's past or future growth

In the UK, FRP Advisory Group (Aim: FRP) is a prominent advisory firm that specializes in restructuring and insolvency services, holding a 12 percent market share. In the last ten years, it has grown and strengthened its position, tripling its market share from 4 percent at the start of the decade. In spite of a generally favorable environment for insolvencies and restructurings, the company has expanded. According to the Insolvency Service, corporate insolvencies peaked in 2009 at 24,000 (across England and Wales), then fell to 14,500 annually in 2015, 2016, and 2017. They then increased marginally to 17,000 in 2019 before plummeting once more to a multi-decade low of 12,300 in 2020.

Low interest rates and modest economic growth helped struggling businesses from 2009 to 2019, but in 2022, everything changed. During the pandemic, government-sponsored initiatives to assist businesses prevented a total collapse in activity. However, as the schemes were discontinued and interest rates increased, more businesses were experiencing financial difficulties. In 2023, there were 25,164 insolvencies in England and Wales, more than doubling from a low of 12,631.

The expansion plans of FRP Advisory Group.

FRP was in a strong position when it entered this setting. In March 2020, the company went public on the Aim junior market, raising £20 million through the issuance of new shares to strengthen its balance sheet and finance acquisitions. Since then, it has gorged itself on deals, completing five in its 2025 fiscal year alone and 14 between the IPO and May 2025.

These agreements have aided FRP in growing outside of its conventional markets. For instance, it purchased One Advisory Group in May, which offers governance services, financial reporting, and transaction advice to over 100 clients, most of whom are listed on the London Stock Exchange. The company's ample cash resources were used to finance all of these agreements. By the end of fiscal 2025, net cash was 33 million, which was just under 10% of the company's market value.

Berenberg, which has examined the company's MandA-driven revenue growth, estimates that these transactions were responsible for about half of 2022 revenue growth (20.5%). Nevertheless, M&A growth was virtually nonexistent in fiscal 2023 and 2024 in contrast to organic growth, which was 9.3% and 23.3 percent, respectively. Around 40% of the company's 18% increase in top-line revenue in fiscal 2025 came from deals.

The company's growth proposition has been centered on deals, but the operating environment has also played a significant role. Berenberg claims that despite a sharp increase in corporate insolvencies, revenue has increased at a compound annual growth rate of 15% over the last ten years. The pattern is still ongoing. The Insolvency Service's most recent data indicates that in May 2025, the number of registered company insolvencies in England and Wales increased by 8% month over month and by 15% year over year. In the first five months of 2025, the monthly insolvency numbers were higher than those of 2024 and comparable to 2023, when the annual number of insolvencies reached a 30-year high.

The price of FRP shares in pence.

Business finance division of FRP Advisory Group.

Although restructuring still makes up 7080% of group revenue, FRP has expanded beyond its core business. Not all companies that encounter challenges go on to fail. Some are purchased, while others are able to reach an agreement with creditors. Even in this case, FRP's corporate finance division maintains a solid market position, accounting for 1520% of total revenue. With 76 successful transactions and an average deal value of £20 million, it was the 19th most active M&A adviser of the year. This implies that FRP is well-established in the mid-market group of businesses that make up the core of the UK economy.

In 2026, 2027, and 2028, Berenberg projects pre-deal revenue growth of 0.7 percent, 4%, and 4%, respectively. It is anticipated that earnings will increase significantly more quickly. The business has industry-leading margins as a result of its successful integrations; its earnings before interest, tax, depreciation, and amortization (Ebitda) margin of 27% is higher than the peer group average of 24%. On a margin of 27 point 5 percent, analysts have therefore projected EBITDA growth of 8 point 9 percent in 2026. On a forward basis, we anticipate a return on capital employed (Roce) of 34.9 percent, which is a measure of profit for each pound invested.

Growth that is undervalued.

Even though FRP's growth, profitability, and strong balance sheet are all very impressive, the market doesn't seem to be interested. According to projections for 2027, the stock is currently trading at a forward price/earnings (p/e) ratio of just 10.2, dropping to 9.8. A forward dividend yield of 4.6 percent is another benefit it provides. On a forward basis, the p/e drops to about nine times when cash is subtracted, which is predicted to reach 39 million by the end of 2026 (assuming the company does not find any more deals).

Berenberg thinks the stock is significantly undervalued based on these figures and when compared to the peer group average. They have set a price target of 220p per share, which, if the dividend yield is excluded, indicates a possible upside of about 72% from current levels. Given that restructuring is an intrinsically cyclical industry, some prudence is necessary. Restructuring and insolvency deals will most likely decline if interest rates decline and the government chooses to do more to boost business in the UK. However, over the last five years, the management team at FRP has shown that the business has what it takes to handle the cycle and even expand during challenging times.