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Gateley: M&A bolsters organic momentum

The law firm’s organic sales growth was complemented by legal and non-legal acquisitions
July 17, 2018

Gateley’s (GTLY) top-line momentum through the full year was buoyed by 9.5 per cent organic growth within its core legal services business. While this was encouraging, the law firm also continued to make progress in terms of M&A. Indeed, revenues from acquisitions completed since its Aim IPO in 2015 have reached £3.3m – up from £2m in FY2017.

IC TIP: Buy at 172p

Gateley is a people-driven business. But people are expensive, and a 10.7 per cent rise in operating costs to £71.6m was largely driven by the ongoing expansion of the workforce to meet client demands. But despite the consequent rise in headcount, cash margins remain in line with expectations – indicative of effective working capital management. 

Gateley’s latest acquisition, which came post-period-end, helped to diversify its offering beyond the legal sphere. Kiddy & Partners – purchased in July 2018 for up to £3m – is a human capital consultancy specialising in business psychology. Back in May, the firm also acquired GCL Solicitors – which focuses on land and property clients – gaining 80 new staff in the process.

Broker Cantor Fitzgerald forecasts pre-tax profits of £16.6m and EPS of 11.9p for the year to April 2019 (up from £14.6m and 11p in FY2018).

GATELEY (GTLY)   
ORD PRICE:172pMARKET VALUE:£186m
TOUCH:170-174p12-MONTH HIGH:190pLOW: 153p
DIVIDEND YIELD:4.1%PE RATIO:16
NET ASSET VALUE:21pNET DEBT:3%
Year to 30 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201454.67.45.4nil
201560.99.87.7nil
201667.111.08.25.6
201777.613.19.46.6
201886.114.611.07.0
% change+11+12+17+6
Ex-div:13 Sep   
Payment:TBC early-Oct