The company endured a big sell-off a little under 12 months ago on proposed changes to whiplash compensation and was also hit by the Brexit vote in June.
Under proposals announced in the Autumn Statement (25 Nov 2015), minor whiplash claims will now be heard in small claims courts rather than as ‘general damages’, potentially reducing the expenses law firms can claim.
NAHL does not fund no-win no-fee claims itself but concentrates on marketing to generate leads for the law firms it counts as clients. It does this principally through the ‘Underdog’ character which fronts its core National Accident Helpline brand.
Within NAHL around three quarters of core enquiries are not related to road traffic accidents so should, in theory, be unaffected by these changes. But slimmer margins on personal injury cases are likely to lead to lower profits for the industry as a whole, which would in turn pressure marketing spend and hurt NAHL.
However in the first half of the year pre-tax profit is up 17.1% £7.5 million, cash conversion is a very healthy 95.7% and the underlying operating margin is up from 27.7% to 34%.
The company has achieved these numbers by focusing on higher value cases in its personal injury division, pursued further diversification into other legal services markets (in particular conveyancing) and seen better-than-expected trading in its critical care business.
The shares are up 15% on the levels they were at when we flagged their recovery potential in January.
Arden Partners reiterates its 'buy' recommendation and says: 'The shares now appear in recovery mode with scope for further upside given the modest rating under 9x and yield of 7.4%.
'Delivery of resilient earnings and the strong track record of the management team within evolving markets support our assessment that the upside opportunity strongly outweighs the downside risk.'