- Double-digit growth
- Dividend hike
Keystone Law (KEYS) has reported a “positive shift in the recruitment market”, which has made it easier for management to hire high-calibre solicitors and grow the business.
Revenue at the legal services group rose by 15 per cent to £87.9mn in the year to 31 January 2024, and adjusted profit before tax jumped by 23 per cent to £11.3mn. Crucially, 51 new “principals” – or senior lawyers – joined in the period, compared with an increase of 32 in FY2023. For a company focused exclusively on organic growth, this acceleration in hiring is reassuring.
Revenue per principal has also risen by 10 per cent to £212,000, suggesting Keystone is enticing bigger billers (a quarter of new joiners came directly from the UK offices of large US law firms or top 25 UK law firms).
The group has a policy of paying its lawyers once clients have paid their bills. This means it avoids the cash flow issues experienced by many other firms, and cash conversion sits at an enviable 96 per cent.
This policy also means that any impairment in trade receivables – ie when a client doesn’t pay an invoice – automatically generates a directly related reduction in trade payables. As such, the group did not separately report impairments in the past. After a review by the Financial Reporting Council, however, it now reports these impairment charges separately. As a result, last year’s figures have been restated, but this does not indicate a meaningful shift in operations.
Shares in Keystone have struggled over the past two years as the "war for talent” has raged in the legal profession. There are signs that this is easing, however, and the firm clearly has an excellent reputation among lawyers. Buy.
Last IC View: Buy, 483p, 15 Sep 2023
KEYSTONE LAW (KEYS) | ||||
ORD PRICE: | 640p | MARKET VALUE: | £201mn | |
TOUCH: | 630-650p | 12-MONTH HIGH: | 694p | LOW: 380p |
DIVIDEND YIELD: | 2.9% | PE RATIO: | 26 | |
NET ASSET VALUE: | 54p* | NET CASH: | £6.0mn |
Year to 31 Jan | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
2020 | 49.6 | 5.23 | 13.3 | 3.20 |
2021 | 55.0 | 5.41 | 13.8 | 17.2 |
2022 | 69.6 | 8.36 | 21.3 | 15.7 |
2023 | 76.4 | 8.38 | 21.5 | 16.2 |
2024 | 87.9 | 10.3 | 24.4 | 18.3 |
% change | +15 | +23 | +13 | +13 |
Ex-div: | 13 Jun | |||
Payment: | 21 Jun | |||
*includes intangible assets of £5mn, or 16p a share. NB: 2024 dividend does not include special dividend of 12.5p a share |