Business services and advisory group K3 Capital (K3C:AIM) has had a busy 12 months, building out new specialisms and integrating acquisitions on its way to creating an end-to-end platform of services for small and medium-sized companies.

On top of its strong earnings growth, the firm pays a generous dividend which based on the current share price equates to a yield of more than 4% for the full year.

LIFECYCLE SERVICES

K3 provides services to smaller  firms at every stage of their development, from M&A (mergers and acquisitions) and disposals to advising on tax and handling legal claims through to restructuring and insolvency.

As business confidence has steadily improved over the past year the firm has seen a surge in demand for its market-leading M&A and tax services.

In the six months to the end of November, which marked the first half of its financial year, the group posted a 73% increase in turnover to £31.2 million driven by a 66% rise in M&A revenues and an 85% jump in tax revenues.

Most of the growth in M&A was organic, with appointments up 47% and mandates growing 75% resulting in the number of offers rising 36%.

In contrast, most of the growth in the tax division was due to the acquisition of a specialist R&D (research and development) tax business, with the result that new clients and claims submitted climbed sharply compared with the previous year.

Meanwhile, the restructuring division is a major player in the insolvency market with a 5% national share, behind only Begbies Traynor (BEG:AIM).

GROWTH POTENTIAL

Chief executive John Rigby is a firm believer in adding new services to meet customer needs in-house rather than outsourcing to third parties and passing up opportunities.

The group launched a debt advisory business to help M&A customers finance bids, and it recently expanded into debt restructuring for struggling companies as it sees less appetite at government levels for firms to be forced into insolvency.

Rigby has ambitious growth targets for K3 over the next five years, too. He forecasts EBITDA (earnings before interest, taxes, depreciation and amortisation) from the existing businesses will increase from an estimated £16 million this financial year to £23 million by May 2023 and to between £33 million and £36 million by May 2026.

In addition to this more than doubling of organic earnings, he envisages adding another £10 million to £17 million through acquisitions, taking total EBITDA to between £50 million and £53 million, which makes today’s circa £200 million valuation look very cheap.

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