Like gravediggers and arms manufacturers, insolvency practitioners are a perverse bunch, who thrive on the misfortunes of others.

It was a surprise, then, that after months of torrid news about the credit crunch and the downturn in the economy, one of the UK’s biggest issued a profits warning yesterday.

Begbies Traynor said that it would not meet profit expectations this year, blaming a lack of insolvency work in recent months. The company said that a wall of cash had been available to bail out companies that a few years ago would have sought insolvency or needed restructuring.

Begbies’ shares slumped 37.5 per cent, or 52¾p, to 87¾p on the announcement.

However, investors in Begbies should not get too nervous. If trends continue, the insolvency market is likely to get much healthier in the new year and the group’s longer-term prospects look assured.

The reason is that there is a natural lag of about six months between the start of an economic downturn and the first wave of insolvencies resulting from it.

Begbies, and the insolvency sector as a whole, expects a flood of companies facing financial difficulties next year.

Companies that overindulged in easy credit will come unstuck as they try to refinance. Moreover, businesses that previously would have attracted investment from private equity or hedge funds soon will find that there is not enough left in the kitty for them. Options will dry up and companies such as Begbies will get the call.

All this is bad news if you are a struggling business but excellent news if you own stock in Begbies, which is due to announce its interim results at the end of January.

The group is strongly operationally geared, with a workforce that has the capacity to take on extra work.

The Manchester firm, which was founded in 1999, posted turnover of £45 million and pretax profits of £5.32 million last year.

It pursued an aggressive expansion plan this year, opening several new offices and acquiring small insolvency practices in preparation for the anticipated rise in business. All those extra insolvency filings will drop straight down to the bottom line.

The company presently holds an 8 per cent share of the corporate insolvency market, which is still dominated by the Big Four accounting firms, but the management believes that its recent expansion drive could push this to as high as 15 per cent.

Part of the group’s expansion involved rolling out new services, although Begbies remains focused squarely on business restructuring and insolvency rather than mainstream accountancy.

Begbies said in its trading statement that full-year operating profit would be about 20 per cent lower than the year before.

Although the numbers may look bad now, yesterday’s nosedive in Begbies’ share price looks significantly overdone.

This seems like a good opportunity to pick up the shares at a discount. Buy at 88p.

Star Energy

Star Energy began life pumping oil out of the ground. Now it wants to pump gas back in. Britain’s second-largest onshore oil producer is trying to turn itself into a gas storage business and is considered hot property by many.

On Thursday, it turned down a 365p a share offer worth £340 million from Malaysia’s Petronas, which has already bought up 39 per cent and is eager to bolster its presence in the UK gas market. There are signs of interest from others too.

It’s easy to understand why. With supplies from the North Sea dwindling, the UK is hungry for gas and short of storage sites. Capacity stands at just 4 per cent of annual consumption, against 16 per cent in the rest of Europe.

Additional sites like the five onshore and one offshore Star hopes to develop are likely to be of growing importance. But Star still faces significant hurdles, not least persuading councils to grant planning permission. This is proving tortuous and it will certainly be years before Star, whose turnover is about £50 million, starts making bigger profits from gas storage than from conventional oil production.

While gas storage remains an interesting opportunity, Star’s business model remains unproven and risky. Avoid at 376¾p.

Emap

The sale of Emap’s radio and consumer magazine businesses and the failure to dispose of its core business-to-business arm raises questions at the media group.

If Emap wants to remain a force in business-to-business publishing and conferencing, it needs to think about eyeing big consolidation opportunities.

The City is uncertain about how capable Derek Carter, new chief executive, will be as a dealmaker. If he wants to win over disappointed shareholders and drive the share price up, he must prove that he is capable of delivering substantial growth. Emap has the potential to make the failure to sell the division work in its favour. It makes sense for it to join forces with the likes of UBM and dominate British business-to-business publishing.

Separately, the sale of the radio division to the German publisher Bauer has raised further questions across the radio industry. The hope was that Global Radio would win the unit behind Magic 105.4 and Kiss to create a commercial radio giant large enough to take on the BBC. As radio advertising continues to come under pressure and listener numbers dwindle, hopes for a dominant commercial radio sector now looks less likely than ever. This will no doubt put pressure on GCap, Britain’s largest commercial radio group.

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