Law firms are people businesses. Investing in personnel is crucial to their growth, which is why Gateley (GTLY) has poached six new lawyers from competitors in the reported period, according to management. Those lawyers helped generate a 16 per cent increase in work for the firm, which is expected to bolster fees in the second half.
Management believes Gateley has attracted more interest from lawyers since it turned public in 2015. Part of that interest is likely to stem from the equity incentive schemes which are currently enjoyed by 53 per cent of staff below partner level. Considering the stock's progress since its 95p placing price at IPO, its lawyers look to have done rather well.
But as the UK’s first listed law firm, Gateley is walking a fine line between attracting and retaining key staff, investing in the business and returning money to shareholders. With an operating cash conversion ratio of 103 per cent and £2.9m of operating cash inflows after tax, the group’s investment requirements look comfortably within its capabilities. However, it gets paid on time. Gateley currently has £10.9m of unbilled revenues, which is slightly above its net current asset value.
Cantor Fitzgerald expects adjusted pre-tax profit of £14.4m and EPS of 10.7p for the year to April 2018 (from £13.6m and 9.8p in FY2017).
GATELEY (GTLY) | ||||
ORD PRICE: | 173p | MARKET VALUE: | £184m | |
TOUCH: | 170-175p | 12-MONTH HIGH: | 198p | LOW: 109p |
DIVIDEND YIELD: | 3.8% | PE RATIO: | 18 | |
NET ASSET VALUE: | 15p* | NET DEBT: | 43% |
Half-year to 31 Oct | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2016 | 35.2 | 4.22 | 3.09 | 2.2 |
2017 | 38.6 | 4.24 | 3.10 | 2.2 |
% change | +10 | +1 | +0 | - |
Ex-div: | 15 Feb | |||
Payment: | March (exact date tbc) | |||
*Includes intangible assets of £3.6m, or 3.3p a share. |