Wednesday, October 18, 2017

NAHL Group

People call National Accident Helpline after an accident because they have consumer brand appeal. NAHL Group (LSE: NAH) answers the call and diverts it to a lawyer that can help. They used to make money off referral fees, but in 2014 regulatory changes stopped that. Now they make money from subscription fees from law firms to whom they send clients, but again regulatory changes are causing them to have to shift models.

So now they plan to make money by owning joint ventures with law firms where they can send the clients. The JV does the work, and everybody benefits.

Management is smart; they keep successfully navigating business models in response to regulations and I believe the company has a moat, as consumers think of the company when they want a lawyer. They have a connection with the consumer that survives the regulations that get thrown at them.

Right now they are transitioning to the new model, requiring structural changes in how they do business, and that has caused profit to fall. But the price has fallen way more. As a result, the company's EV/EBIT is about 8, despite what I would consider to be a moat in terms of generating clients.

Disclosure: Author has a long position in shares of NAH

1 comment:

V Shah said...

Hi Saj,

I was a little bit shocked when I read that you invested in NAHL.

As a UK resident, I can tell you that this is one of the most hated industry. Their users are going through pain as they suffered either accident or other injuries and going through a bad time when they contact NAHL. Most users don't want to contact this kind of companies of they can settle with the opposite party directly.

Regulators know that some of these companies, not sure NAHL in particular, are taking advantage of consumers and sometimes get 70-80% commissions from any claim they can win. And hence, regulators have put so many restrictions in the last few months to reduce their commissions.

Insurers, physio companies, doctors, etc all dislike working with accident claim companies and now going to end-users directly where possible.

In short, this isn't a win-win company which provides a good service which consumers like them. Also, this isn't providing any value-enhancing service to the society either. Being a very small cap company with 100s of other similar companies trying to get market share in the UK, I would be surprised to see NAHL making much profit in the coming years.

But, as always, I might have missed valuing NAHL for short term or long term. Hence, good luck with the investment.

Thanks
Veeral

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