Wednesday 27 March 2013

Abbey Protection (ABB)

Abbey is a small AIM listed company and is the leading supplier of specialist legal and professional fees insurance to small and medium UK companies. One of their divisions supplies specialist policies to cover the cost of professional fees involved in tax investigations.

As we saw in last weeks budget, the government are keen to crack down on tax evasion and HMRC are stepping up their efforts to secure more tax revenues from some of the UK's wealthiest individuals. Abbey’s CEO, Colin Davison has described these tax investigations as very good for his business.

Abbey is the smallest holding in my portfolio with a market cap of around £115m, it is conservatively managed and has net cash on the balance sheet. As with many of the shares in my portfolio, the attraction is the fast growing dividend which is supported from quickly growing revenues and profits which have advanced in each year since the company floated on the AIM market in 2007.

Abbey have today issued their full year results for 2012. Here’s a link via Investegate.

Despite some challenges anticipated last year, they appear to have put in a reasonable performance - revenues up 7% and a 3% increase in pre-tax profits. The company is debt-free and a further £3.3m (12%) has been added to the balance sheet. The dividend has increased just over 11% from 4.4p last year to 4.9p giving a yield of 4.4% based on the current price of 112p. The dividend is covered 1.6x by earnings - I would not want to see it any lower (a reduction from 1.7x cover last year).

The share price has had a good run this past year - up 45% on the 77p at the same point last year - there is little movement following the results and I would guess the current price is just about up with events for the time being.

The main item of note seems to be the securing of a licence to become an Alternative Business Stucture following deregulation of the legal services market. They have now aquired a firm of solicitors which will enable Abbey to provide a wider range of services to existing and new clients.

The board seem confident in their outlook for the coming year, pointing to significant opportunities for their specialist tax and legal services. The directors all have a significant holding of shares which closely alignes their interest with the success of the business (and small shareholders!).

I am hoping there will be plenty more to come from this small cap over the next few years.

As ever please DYOR

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