Keystone: the flexible future of law

However, Keystone’s tech-enabled, platform model makes it stand out. Unlike a conventional limited liability partnership structure, Keystone provides a full central and back-office function that allows the lawyers on its platform, all of which are self employed, to concentrate on winning work and servicing clients. The diversity of clients and lawyers means the Keystone platform also generates referrals internally from lawyers working on cases that need specialisms they don't have. For its services, Keystone takes 25 per cent of fees.

Importantly, this model is proving a hit with experienced, high-caliber lawyers and Keystone believes partnership has stopped being the industry's 'holy grail'. The average age of new joiners over the last year was 46 and average billings per new recruit is about £150,000. Meanwhile, applications were up 24 per cent last year to 255, with 62 offers accepted. Encouragingly, retention rates are a solid 95 per cent and recruitment costs are modest at £7,000 a lawyer. Overall, lawyer numbers rose 17 per cent from 228 to 266 in the year to the end of January and the recruitment pipeline is strong. 

Recruitment is key to growth, especially as the relatively fixed cost associated with managing the platform means that as revenue rises, margin should swell. Keystone’s maiden preliminary results as a public entity have set the stage for high-growth, cash generation and dividend payouts. Full-year revenues to January 2018 rose 24 per cent to £31.6m, which helped push underlying cash-profit margins up from 9 per cent to 10.3 per cent and took underlying cash profits up 43 per cent to £3.3m. And underlying profit before tax rose 63 per cent to £2.9m.

After raising £15 with its 160p float, the balance sheet looks strong, and solid cash generation (Keystone only passes payment to lawyers after money has been collected from clients) supports expectations of impressive dividend growth and a not-insubstantial 2.8 per cent yield by 2020.  

True, on 2 May, chief executive James Knight and non-executive Simon Philips sold shares at 282p, respectively offloading 8 per cent and 25 per cent of their holdings, which pocketed them £2.5m and £5.1m. But Mr Knight and Mr Philips (through his Root Capital vehicle) still hold noteworthy stakes of 35 per cent and 17 per cent. What's more, given the shares wide bid-offer spread, any increase in the free float has benefits for investors.