RBG shares fall to all-time low after “disappointing” 2023 performance

Ismail: Year of significant transition

Shares in AIM-listed legal business RBG Holdings fell to an all-time low today after it said turnover would be down a “disappointing” 16% in 2023.

The price fell 35% to 10.75p in early trading, having been 64p at the start of 2023 and reached a high of 148p in June 2021.

In a trading update, the group – home to London practices Rosenblatt and Memery Crystal – said the second half of 2023 has not lived up to its historic trend of being stronger than the first, in which profits were slashed.

“In particular, Memery Crystal [the non-contentious practice] has been impacted by the lack of activity in both commercial real estate and equity capital markets with transactions that were forecast in Q4 2023 either being delayed into 2024 or cancelled altogether.”

Meanwhile, the group’s specialist sell-side corporate finance advisory business, Convex Capital, has not been able to turn “a strong pipeline” of 18 deals into completed transactions, blaming “the current economic environment and weakness in the M&A market”.

Convex completed three transactions this year, delivering fee income of £2.2m against a previous board expectation of £4.5m.

“Until recently, the board had confidence over its expectation but it has now become clear that no more transactions will complete this side of the financial year end. The pipeline is positioned to deliver the delayed transactions in 2024.”

Group turnover was forecast at £42m for 2023, compared to just shy of £50m last year, with EBIDTA falling from £16m to £4m.

The figures also reflect a decision to write off £1.8m of historic debtors and work in progress and the £1.9m costs of employment cases relating to the previous leadership team – in October, RBG reached a £500,000 settlement with its former chief executive, Nicola Foulston, who it fired in January after losing confidence in her.

RBG recently announced that it had renewed and extended its existing borrowing facilities with HSBC, under which the debt headroom was raised to £24.5m; debt is currently £22m.

“Under the board’s base case scenario which includes improved working capital management, the company has sufficient cash headroom over the next 12-month period,” today’s announcement said.

The business described 2023 as “a pivotal year”, highlighting the efforts to reduce its risk profile and refocus on its core business activities.

In July, it sold its litigation funding arm, LionFish, for up to £3.1m and wrote off all of its contingent work, sending the share price to what was then an all-time low. It has also scaled back from “unfunded alternative billing arrangements” and no longer carrying investments in them as assets on the balance sheet.

Further changes included stopping dividend payments so as to focus on reducing debt, an increase in bad debt provisions and recruiting seven new partners.

Non-executive chair Marianne Ismail said: “The board recognises that FY 2023 has been a year of significant transition and a disappointing one for shareholders. Nonetheless, the board is confident that the business is moving into FY 2024 on a significantly stronger footing than at the start of this year…

“The group now has noticeably improved operating processes that will begin feeding through in terms of improved margins in 2024.  Our new agreement with HSBC gives the team operational headroom to deleverage the business while it brings performance back up to acceptable levels.

“There are early signs of recovery in some of the key areas of legal services that were badly impacted in 2023 but we will be presenting a more conservative budget for 2024, with revenue and profit expected to be slightly higher than 2023, that is designed to demonstrate both clarity and profitability to investors and other key stakeholders.”

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