Two years on from its Aim debut, law firm Gateley (GTLY) is proving its worth as an investment. With very little help from currency movements, strong domestic deal-flow pushed up operating profits by 18 per cent in the year to April, while cash generation was sufficiently strong to boost the dividend, invest in new service lines and open up a Reading office.
Chief executive Mike Ward acknowledged that Gateley’s claim to be the only law firm with a positive balance sheet was “a cheap shot”. It is cheap for two reasons. First, if other firms’ net assets are nil, it is only because they are technically accounted as “attributable to members”. Second, Gateley has a wafer-thin asset base, largely comprising unquantifiable intangibles that typify service companies.
Still, keeping earnings in the hands of shareholders rather than partners allows Gateley to prioritise investment over annual distributions to senior lawyers. In 2017, acquisitions contributed £2.1m to revenue and £0.5m to cash profit, not insignificant sums for a law firm of Gateley’s size. The fact that Gateley now provides specialist tax incentives and property consultancy advice should also help cross-selling and referral efforts.
Analysts at Arden Partners expect adjusted pre-tax profit of £14.3m and EPS of 10.7p in the year to April 2018, up from £13.6m and 9.9p in 2017.
| GATELEY (GTLY) | ||||
| ORD PRICE: | 186p | MARKET VALUE: | £199m | |
| TOUCH: | 185-187p | 12-MONTH HIGH: | 198p | LOW: 98p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 16p* | NET DEBT: | 28% | |
| Year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 51.4 | 5.1 | n/a | nil |
| 2014 | 54.6 | 7.4 | 5.4 | nil |
| 2015 | 60.9 | 9.8 | 7.7 | nil |
| 2016 | 67.1 | 11.0 | 8.2 | 5.6 |
| 2017 | 77.6 | 13.1 | 9.4 | 6.6 |
| % change | +16 | +19 | +15 | +18 |
| Ex-div: 7 Sep | ||||
| Payment: Early Oct *Includes intangible assets of £3.84m, or 3.6p a share | ||||
