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Shares I love: Knights Group

Knights has increased its revenue and made four acquisitions
July 25, 2019

Phil Harris, manager of EdenTree UK Equity Growth Fund (GB0008446063), says why he invests in professional services firm Knights Group (KGH). In its first annual results since listing on the Alternative Investment Market (Aim) in June 2018, the company reported a 51 per cent increase in its revenue.  

“Knights has reached new heights with strong revenue, earnings before interest, taxes, depreciation and amortisation (Ebitda), and earnings per share growth,” says Mr Harris. “We believe the company’s revenue growth should prove to be resilient regardless of the macroeconomic situation, as litigation is relatively cycle agnostic and arguably increases during a downturn. The legal sector has been undergoing structural change, and the companies with the strongest balance sheets, best cash conversion and most efficiency will be the winners.

"With four acquisitions since its initial public offering (IPO), successful integration into the Knights family is encouraging an increasing number of partners at independent law firms to de-risk. Consequently, Knights is broadening its UK reach and providing an increasingly diversified first-class service at a regional price. Knights has a strong fee earner/non fee earner ratio of 4 times which helps to ensure strong Ebitda margins. Lock-up days, which are traditionally a weak spot for professional service firms, are ahead of the industry average.

"Knights’ chief executive officer David Beech has a significant shareholding in it, and he has the drive and determination to take the company to the next level."

IC rates Knights Group as a 'Buy' for the following reason:

"Mr Beech believes greater visibility since joining Aim is improving organic and acquisitive growth opportunities. Indeed, since the year-end, the number of fee earners has already increased from 520 to 600. With a healthy balance sheet giving the company the firepower to make further bolt-on acquisitions, we think this growth story has further to run."