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Keystone's persuasive opening statement

The law firm floated on Aim last November, and its maiden results beat market expectations
April 25, 2018

Keystone Law (KEYS) floated on the Alternative Investment Market (Aim) last November and its maiden full-year results show that the 'challenger law firm' is firing on all cylinders, as it adjusts to life as a publicly-traded entity.The preliminary numbers revealed strong top-line growth, with accelerating momentum further down the income statement. Reported cash profits were up 28.9 per cent to £2.7m; adjusting for IPO-related costs, the improvement was even greater at 42.7 per cent to £3.3m, while the underlying margin increased from 9 per cent to 10.3 per cent – a reflection of the company’s continued operational gearing.

IC TIP: Buy at 253p

Management said the UK legal mid-market is worth around £8bn, and while Keystone remains, in essence, an outlier in the market, it believes it is well-positioned to gain from cultural changes occurring within the legal profession. This is thanks to its first-mover advantage as a platform model firm, whereby self-employed lawyers are connected to the London-based central office via a proprietary software system (‘Keyed In’). This structure is proving attractive: lawyer numbers rose from 228 to 266 year on year.

Panmure Gordon forecasts pre-tax profits of £4m and EPS of 10.3p (upgraded from 9.6p) for FY2019, up from £2.9m and 8.1p for FY2018.

KEYSTONE LAW (KEYS)  
ORD PRICE:253pMARKET VALUE:£79.2m
TOUCH:248-258p12-MONTH HIGH:267pLOW: 175p
DIVIDEND YIELD:0.3%PE RATIO:42
NET ASSET VALUE:40p*NET CASH:£3.6m
Year to 31 JanTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201516.10.6nanil
201620.90.8nanil
2017 **25.61.23.5nil
201831.61.96.00.84
% change+24+61+71-
Ex-div:14 Jun   
Payment:02 Jul   
*Includes intangible assets of £7.2m, or 23p a share **Restated