Small Cap Catch-Up: FRP Advisory, Tortilla Mexican And Shearwater

FRP Advisory Group (LON:FRP) – Currently Undervalued And Worth A Lot More

This business advisory group showed good trading in the year to end April.

Revenues were up 23% at £128.2m (£104.0m) while adjusted pre-tax profits were a thumping 39% ahead at £33.7m (£24.1m), with earnings some 27% higher at 9.94p (7.83p) and easily covering the 9% rise in dividends to 5.0p (4.6p) per share.

The group also showed a useful 30% gain in its net cash position leaving the year with £29.7m (£22.9m) cash in the bank.

The business offers a range of advisory services to companies, lenders, investors and other stakeholders, as well as individuals – covering Restructuring Advisory, Corporate Finance, Debt Advisory Forensic Services and Financial Advisory.

CEO Geoff Rowley stated that:

“The Group made excellent progress in the financial year to 30 April 2024, growing revenues and profits for another consecutive year as we remained focused on the execution of our proven strategy: achieving strong organic growth, supplemented by selective acquisitions. 

All five of our pillars made a positive contribution in the year.

Our restructuring team continued to be the most active in the UK administration appointment market, FRP Corporate Finance was ranked as the 24th most active financial adviser in the UK M&A market, and our Forensic Services team was very active on a high number of investigation and litigation / arbitration confidential projects.

Trading for the first full year of the combined Financial Advisory pillar has been positive, with heightened activity across all service lines

In the new financial year, activity levels across all our locations and pillars are encouraging, with trading in line with the Board’s expectations.

Our M&A pipeline also remains healthy, giving us confidence of making further positive progress against our strategy.”

Non-Executive Chair Penny Judd stated that:

“In our new financial year, activity levels have been encouraging and trading is in line with the Board’s expectations including the financial contribution of recently acquired businesses where integration is progressing as planned.

The short and medium-term outlook for our business remains positive and we are confident of continued progress.”

Analyst Peter Renton at Cavendish Capital Markets remains positive about the group, noting that it was a busy year for FRP’s Restructuring practice, with many businesses still expected to face challenges in the continuing fragile economic environment.

The brokers have a 200p Price Objective on the £328m capitalised group’s shares.

Renton looks for £146.0m revenues for the current year to end April 2025, pushing adjusted pre-tax profits further ahead to £35.8m, generating 10.5p earnings and paying a 5.2p dividend per share.

For the 2026 year he goes for £153.7m revenues, £36.5m profits, 11.0p of earnings and a 5.4p dividend.

I think that the continuing uplift in revenues, coupled with useful strategic acquisitions, will keep on showing better profit returns and earnings.

The shares, which have been up to 149p within the last year, are currently trading at around the 129p level.

They appear to me to be an excellent ‘gentle growth’ investment in a group that is currently undervalued.

(Profile 15.02.21 @ 104p set a Target Price of 130p*)

(Profile 29.09.23 @ 117p set a Target Price of 136p*)

Tortilla Mexican Grill (LON:MEX) – A Slower Delivery But Well Worth Waiting For

The first half Trading Update from this fast-casual Mexican restaurant group, covering the six months to end June, reported a like-for-like sales drop of 5.9% to £31.5m – perhaps not too surprising considering the very challenging times within the food sector.

CEO Andy Naylor stated that:

“We are now seeing the positive implementation of our strategy across all five pillars as we continue to strengthen Tortilla’s offering and position the business to capitalise on the long-term significant opportunities in our market as the dominant European market leader in fast-casual Mexican cuisine.

In the first half of 2024, we have significantly improved the quality of our food and are driving exciting innovation.

We have accelerated the deployment of kiosk-ordering technology and will be launching our new loyalty platform at the beginning of August. 

Whilst the timing of these initiatives has been slower than planned, the early signs are positive, and we look forward to updating shareholders on progress in September.”

These results give guidance of a slower run at recovery than previously anticipated.

Analyst Anna Barnfather at Panmure Liberum still rates the £20m group’s shares as a Buy, despite lowering her Price Objective to 90p (115p).

For the year to end December she is looking for £68m takings against £66m previously, while dropping to a £0.3m pre-tax loss (£0.2m profit).

However, for 2025 she has estimates for £78m sales, £0.9m profits, with 1.5p of earnings per share.

The 2026 year should, she reckons, see a major uplift, with £87m receipts and a more useful £3.8m pre-tax profit, worth 7.9p per share in earnings.

If that suggested recovery can come into play, then without doubt, these shares at the 14% lower after-Update level of 54p could well prove to be a cracking purchase to tuck away, awaiting price uplifts which will occur in due course.

And certainly well worth buying into any ‘spicy’ dips.

(Profile 06.06.24 @ 52.5p set a Target Price of 65p)

Shearwater Group (LON:SWG) – Setting A New Target Price Of 56p

The year to end March for this cybersecurity, advisory and managed security services group saw revenues down from £26.7m to £22.6m.

However, the adjusted pre-tax loss of just £0.6m was more than half of the previous loss of £1.3m.

Net cash was 25% better at £5.0m (£4.0m).

CEO Phil Higgins stated that: 

“I am encouraged by how resiliently the Group navigated challenging market conditions in the year.

Although FY24 performance was impacted by some customers deferring budget allocations, we emerged having secured notable contract wins and having maintained a strong level of customer engagement.

We are encouraged that FY25 has started well, with a number of significant contracts already secured and clear signs that customer budget allocation is starting to be released at a modest pace.

The team remains focused on converting the significant pipeline of opportunities across both divisions, with deepened expansion into Government departments remaining a key strategic priority and a major growth avenue for the business.

We are confident in returning to growth in FY25 and in delivering solid, sustainable revenue and profit growth in the years ahead.”

Analysts are looking for revenues in the year to end March 2025 of £27.6m and a swing back into profits of around £0.6m, worth 2.4p in earnings per share – together with a Price Objective of 78p per share.

This has not previously been a good selection for this column – as can be seen by my dismal inability to hit Target Prices.

However, I now set a new TP of 56p on the group’s shares, now at only 45p.

(Profile 14.04.20 @ 245p set a Target Pric of 310p)

(Profile 23.03.22 @ 118p set a Target Price of 145p)

(Asterisks * denote that Target Prices have been achieved since Profile publication)