Legal services driving growth
​Fairpoint Group provides a range of retail consumer targeted professional services pivoted on debt solutions and legal services. The group's four core business segments are: consumer legal services, IVA, debt management plan and claims management services.
FY'15 results yesterday revealed a number of positive core messages: double-digit growth in legal services' revenues and adjusted profit; continued cash generation and attractive operating margins from debt solutions; a strong balance sheet with access to further long-term debt to fund new opportunities to drive consolidation in the consumer legal services market.
At group level there was 41% y-o-y revenue growth and a 13% increase in adjusted profits. That reflected significant growth in the legal services division, plus a focus on cost control across all areas of operation. Legal services contributed 58% of total FY'15 sales (FY14: 31%). It is currently 67% of total group sales on a proforma basis, offsetting lower contributions from the debt solutions segments.
We expect Fairpoint's Legal Services to benefit from an integrated brand with a broader product range and scale. Debt Solutions continues to contribute: the individual elements were profitable on an adjusted basis, and cash generative.
Looking forward, we have built in sharper falls in IVA volumes than we did at the mid-year, relatively modest savings or synergies from recent legal services division growth and no further acquisitions. That still leaves the shares on a low prospective PER of 8x, supported by a comfortably covered 4.6% yield.
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