Diversification paying off for Gateley

Around a fifth of Gateley’s (GTLY) annualised revenues now come from consultancy, which highlights the progress it is making with diversifying its offering. The Aim-listed legal services company picked up three consultancy businesses in the year as it made further headway with growing its top line. 

Chief executive Rod Waldie told Investors’ Chronicle that the acquisitions are “critical to building a more diverse business with more diverse service lines” and said that Gateley is actively looking at further potential purchases.

Consultancy is bearing fruit for the company, with organic revenue growth of 27 per cent outstripping the 9 per cent uplift enjoyed by legal service lines. Total consultancy revenue was up by 45 per cent to £21.3mn, taking 16 per cent of overall revenues.

While the operating margin was down slightly, falling 59 basis points to 13.8 per cent, this wasn’t a bad result given the high levels of wage inflation seen within the legal sector. Around a quarter of Gateley's professional staff are qualified in non-law disciplines, which helps with controlling wage increases. And with a strong market position, the company was able to pass on some of the higher costs to customers through raising fees.

Liberum analysts said that “Gateley deserves a higher multiple given its consistent growth record, the excellent cash generation, and the best lock-up days in the sector after Keystone [KEYS]”. Gateley has continued to post steady revenue growth and looks well-positioned in the legal space in a challenging economic environment. And a sturdy balance sheet, with liquidity to draw on from a new £30mn revolving credit facility, doesn’t hurt the bull case. Buy.

Last IC View: Buy, 189p, 28 Jul 2022