Volatile market conditions and higher interest rates impact personal injury group

Volatile market conditions will impact revenues and earnings for Salford-based personal injury specialist, Frenkel Topping, it warned today, but the firm announced a new debt facility going ahead.

Frenkel Topping is a specialist financial and professional services firm operating within the personal injury and clinical negligence marketplace.

In a trading update for the financial year ended December 31, 2023, it said revenue increased by 32% driven by acquisition and organic growth

In light of the challenging market conditions during the year, revenue is expected to be £32.8m in FY2023 and adjusted EBITDA is expected to be £8m, lightly below expectations by around 6-7%.

Key metrics show Assets Under Management (AUM) up 12% to £1,335m (2022: £1,187m); Assets on a discretionary mandate up 15% to £820m (2022: £715m); New Money Market Solution launched in June 2023 attracting investment of £39m; acquisition strategy continues to deliver with non-recurring revenue up in excess of 50%; two new Major Trauma Centres and three Working-in-Partnership JVs added during the year; cash generation from operations continues to improve, up more than 150% from 2022.

The company had £2.4m of net cash at the year end and client retention rate remains high at 99%.

The 2024 fiscal year has started strongly with a number of AUM opportunities in the pipeline.

CEO, Richard Fraser, said: “Volatile market conditions have seen clients channelling funds into high interest savings accounts and led to a general reluctance to invest in equities which, unsurprisingly, has meant high margin recurring revenue being impacted, with a consequential impact on both revenue and EBITDA for FY2023 being slightly below expectations by c6-7%.

“However, we have grown our AUM, in no small part thanks to Ascencia, which has again beaten its benchmark and shown agility in launching the new Money Market Solution in response to market dynamics and client demand and overall demonstrated resilience in a challenging environment.”

He added: “We are seeing the benefits of our acquisition strategy coming to fruition. We continue our focus on data and are seeing the growth in transactional revenue channelling into future growth opportunities in AUM.

“We continue to be optimistic about our long term goal to grow to 15% market share in each of our business units.”

The group said it is reassuring that its recurring revenue has continued to grow, and that the year-end AUM has increased. However, growth in AUM was moderately impacted by market conditions, which remained challenging and the company has not been entirely immune from it.

High interest rates have meant many potential new Court of Protection clients were inclined to hold funds within the Government’s Court Funds Office accounts rather than to invest.

In June 2023 and in response to this, Ascencia launched a ‘Money Market Solution’ which provides clients with an investment solution that benefits from the higher interest rate environment. This product, assisted by the hard work and tenacity of the sales team, has attracted investment from both new and existing clients with £39m of assets added by the year end.

While funds in this Money Market Solution product do earn a lower fee than those invested in the group’s other investment solutions, which has moderately impacted the overall full year outturn, the business is confident that they will be redeployed to higher fee products across its proposition as financial markets turn.

Looking ahead, the company continues to deliver on its growth strategy, in particular the transactional businesses are thriving, a clear indicator that the group is adding value through its acquisition strategy.

For the recurring revenue businesses, the market backdrop continues to be uncertain. The success of the Money Market Solution means that funds are waiting to be deployed into higher yield funds, however, the timing is unclear and prudently Frenkel Topping anticipates a similar impact on this current financial year from this headwind and revises its expectations accordingly.

It said January 2024 has been positive with a strong pipeline of new AUM opportunities being pursued which provides confidence for the start of the new financial year.

It said it is confident it can continue to deliver growth in shareholder value in the years ahead.

Post period end the company has entered into a £7.5m revolving credit facility at 2.95% over SONIA (Sterling Overnight Index Average) with high street lender Santander on standard commercial terms to support its growth and acquisition strategy.