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Knights forges ahead despite Covid-19

The legal services group continued its expansion into regional markets outside of London last year and the pandemic could throw up further opportunities
Knights forges ahead despite Covid-19

Knights (KGH) saw its revenue jump more than two-fifths in the year to 30 April, aided by 10 per cent organic growth. This came as it accelerated the recruitment of legal staff, adding net 108 fee earners. A significant number of these came from top 50 law firms.

IC TIP: Buy at 425p

Benefiting from operational gearing – meaning profits grow faster than sales once fixed costs are covered – underlying pre-tax profit surged by 45 per cent to £14m on an improved margin. Statutory earnings were weighed down by one-off costs associated with acquisitions.

The group made six acquisitions during the year, widening its expertise and extending its footprint to new major regional markets such as Birmingham and Leeds. The purchase of real estate specialist Croftons in January has brought a defensive portfolio of work advising housing associations in Manchester.

The arrival of Covid-19 saw a reduction in client instructions and difficulty in communicating with other law firms that took longer to transition to remote working. But Knights says market conditions are recovering and it is seeing higher demand for its employment specialists to deal with issues such as redundancies and furloughing.

Excluding lease liabilities, the group ended the year with £15.9m of net debt, equivalent to less than one times adjusted cash profits (Ebitda). As previously announced, there’s no final dividend.

Numis forecasts that adjusted operating profit will rise to £20.9m this year, and to £23.5m in FY2022.

KNIGHTS (KGH)    
ORD PRICE:425pMARKET VALUE:£312m
TOUCH:416-434p12-MONTH HIGH:499pLOW: 286p
DIVIDEND YIELD:0.3%PE RATIO:174
NET ASSET VALUE:104p*NET DEBT:50%**
Year to 30 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2018***34.94.206.44-
201952.75.205.841.9
202074.34.062.441.1
% change+41-22-58-42
Ex-div:na   
Payment:na   
*Includes intangible assets of £69m, or 94p a share, **Includes lease liabilities of £24m, ***Pre-IPO