Resilient model offers much more growth
| Fairpoint provides retail consumers with professional services in two broad areas: debt solutions and legal services. The last two years has seen progressive improvement in the balance of the product portfolio as growth in legal services, both organic and acquisition based, has comfortably offset regulatory driven headwinds in its traditional IVA and debt management markets. Management has performed well, delivering resilient financial performances despite difficult markets during the four year tenure of the current team. A focus on profitable business and careful cost control has maintained margins, even where volumes have declined. Via an innovative legal services model, Fairpoint plans to transform the traditional retail legal services offering. Since January it has offered its clients guaranteed deliverables at predetermined fixed prices, providing a far more transparent arrangement than typically available. The Group now has a strong growth template and platform. They have secured two large scale acquisitions and intend to close more during FY16. Opportunities for industry consolidation are being driven by regulation and growth plans are underpinned by the strong balance sheet and access to funding. A prospective 9.8x FY16 PER is materially below that of the market and other quoted peers, and the shares are supported by a well covered 3.7% yield. Forecasts are based upon conservative assumptions and we see potential for better than expected growth in legal services revenues over the forecast period. Despite strong share performance a further rerating looks deserved: a move to 12x FY16 would imply a 240p share price. |
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