Brewin Dolphin’s Mark Fleetwood flags potential for a 50% earnings upgrade at Begbies Traynor after initiating coverage with a ‘buy’ recommendation.

Insolvency practitioner Begbies has been much touted as a beneficiary of the credit crunch as rising borrowing costs drive up insolvencies, but the company came a cropper late last year with a profit warning after investing heavily ahead of a spike in insolvencies that never materialised.

Shares collapsed 38% on the day of December’s profit warning, dropping from 141p to 88p. However, as the market has accepted the profit warning was due to a timing issue – rather than anything fundamentally wrong with the business model – shares are back up to their pre-alert levels.

Fleetwood, who initiates with a 160p price target, says: ‘If demand is strong, we theorise that in 2009, some £10 million of additional revenue could be delivered with relatively modest additional recruitment and marginal incremental cost increases. This could add up to £5 million to the bottom line and 50% to our earnings forecast.’

by Simon Keane