Strong growth driven by legal services acquisitions
​Fairpoint Group has now evolved into a broadly based professional services business. The success of the diversification policy is shown in today's interim results with a 64% increase in revenue and the 21% rise in "adjusted profits" (IFRS profits rose by even more) despite the 30.4% fall in the number of IVAs passed in the half-year and a significantly greater fall in the value of those cases. As a result of last month's trading statement we had already revised upwards our forecast for full year profits and eps to £10.5m and 18.5p. Today the interim dividend was increased by 6.5% (slightly more than we forecast) to 2.45p. Legal Services is now the largest part of the group, contributing 49% of revenue in H1 and is expected to contribute nearly two-thirds going forward following the recent acquisition of Colemans. One could say that the acquisition and organic growth of the Legal Services division is nearly trebling group revenue.The change in composition of Fairpoint's business from one centred on the cyclical (and temporarily shrinking) insolvency market to a more broadly-based one with legal services comprising a majority has already lead to some re-rating of its shares. This should have further to go since the nearest comparator, Gateley, is on a double-digit PFER for 2016 and 2017, while Fairpoint, even after the recent rise, is on only 8.6x for 2016. Our new target share price of 200p would still leave the group on a PFER discount to the All-Share index, and remains well above last night's closing price of 171p.
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