The key distinction between Keystone Law (KEYS) and its listed law firm peers is its platform model. A network of self-employed lawyers contract with the group, working from their own base but connecting to the central office using proprietary software. Growth is driven by continued recruitment of senior lawyers – so-called “principals” – with an existing client base. The group added net 51 new principals in the year ending 31 January, bringing the total to 328.
Gross profit rose 14 per cent to £13.2m, but the margin dropped 0.4 percentage points to 26.7 per cent. Keystone attributes this to a one-off piece of higher margin litigation work in the prior year.
Billing and cash generation have thus far held up in face of the Covid-19 pandemic, but there has been a “meaningful decline” in new instructions from clients. Keystone believes it has sufficient liquidity to weather any disruption – excluding £2m in lease liabilities, it started this year with £4.4m of net cash. Meanwhile the variable cost base should offer protection. Rather than fixed remuneration, lawyers are paid 60-75 per cent of case fees and only once the group itself has been paid.
Panmure Gordon expects the coronavirus crisis will impact recruitment, projecting a 3 per cent decline in lawyer numbers this year. It anticipates adjusted pre-tax profit of £2.7m and EPS of 7.1p in 2021, down from £5.8m and 14.9p in 2020.
| KEYSTONE LAW (KEYS) | ||||
| ORD PRICE: | 429p | MARKET VALUE: | £134m | |
| TOUCH: | 428-430p | 12-MONTH HIGH: | 630p | LOW: 347p |
| DIVIDEND YIELD: | 0.7% | PE RATIO: | 32 | |
| NET ASSET VALUE: | 45p* | NET CASH: | £2.4m** | |
| Year to 31 Jan | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017*** | 25.6 | 1.20 | 3.5 | - |
| 2018 | 31.6 | 1.93 | 6.0 | 0.8 |
| 2019 | 42.7 | 4.75 | 12.2 | 9.0 |
| 2020 | 49.6 | 5.23 | 13.3 | 3.2^ |
| % change | +16 | +10 | +9 | -64 |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes £6.5m of intangible assets or 21p a share, **Includes £2m in lease liabilities, ***Pre-IPO, ^No final dividend declared and excludes 8p special dividend already paid | ||||
