2023 has been a year to forget for penny stock Frenkel Topping (LSE: FEN) and its shares. I want to understand if the New Year could bring better fortunes and if I should snap up some shares for my holdings! Let’s dive in.
NOT a food company
I’d forgive you for thinking Frenkel Topping made pizza toppings, although that train of thought does make my belly rumble. In fact, it is a financial services business specialising in independent financial services, wealth management, and asset protection. Much less exciting, I know.
Remember a penny stock is one that trades for less than £1 and has a market cap of less than £100m.
As I write, Frenkel shares trade for 53p. Over a 12-month period they’ve dropped 28% from 74p to current levels. In 2023, the shares are down virtually the same amount.
The investment case
It’s not hard for me to understand why Frenkel shares have struggled this year. Macroeconomic volatility including soaring inflation, rising interest rates, as well as geopolitical events globally, have pushed down many stocks, especially financial services stocks.
This is also a continued risk moving forward as if these issues don’t subside, Frenkel shares could struggle further. After all, people are less worried about investing for their future but more bothered about paying higher food, rent, and energy bills.
Another bearish aspect for me to note is Frenkel’s growth strategy. The business looks to acquire other firms to boost its offering. Acquisitions can be great when they work out. However, they can be disastrous when they don’t as they can be costly to dispose of and impact investor sentiment.
Conversely, one of Frenkel’s largest segments is providing financial advice and helping solicitors and barristers involved in litigation over medical negligence as well as personal injury claims. What could help Frenkel’s bottom line is its approach whereby it works both sides of the coin, helping claimants and defendants. This means its services span the whole area of cases, which could help set it apart from others and boost performance. One risk here is that changing regulation could threaten Frenkel’s involvement and propensity to benefit financially too.
Speaking of performance, Frenkel’s most recent results – an interim report released at the end of September – was positive. Revenue and profit rose by 44% and 89% respectively. Recurring revenue and cash on its balance sheet also rose. Plus, the business has an excellent track record of performance with revenue and profit growth for each of the past three years. However, I understand that past performance is not a guarantee of the future.
Finally, a dividend yield of 2.5% would help boost my passive income stream too. However, I understand dividends are never guaranteed.
My verdict
All things considered, I don’t see why Frenkel shares could head upwards in 2024. There will need to be a considerable shift in macroeconomic factors, in a positive direction no less.
However, I’m not going to buy Frenkel shares for my holdings. I think my hard-earned cash is better spent on other stocks (and pizza) with better prospects. I’ll be keeping a close eye on the business nevertheless.
