Investing in the only law firm listed in London, Gateley (GTLY:AIM), may not appear a sound decision. These companies are ‘people’ businesses, their tangible assets are their lawyers who make money through client instructions.

Others in the legal market have seen their companies decimated by high profile (high billing) partners leaving for pastures new and in some cases taking their clients with them.

Gateley though has had a great time on the market since floating in June 2015. Its share price has shot up 85% on its 95p IPO price and it has attracted quality lawyers from global law firms such as Hogan Lovells and King & Wood Mallesons. This is a company clearly on the up, underpinned by a solid dividend. We would be buyers.

Its financial results for year ending 30 April make for impressive reading. Revenues are up by 15.7% to £77.6m, pre-tax profit up 18.8% to £13.1m and basic earnings per share increases 15.3% to 9.43p.

Full service

Gateley covers a wide variety of legal practices, unlike Aussie-listed Slater & Gordon which focuses on personal injury claims. The firm offers corporate, family, private client and family advice as well as having a fairly sizeable dispute resolution or litigation team.

This diversity can work well for law firms as when there’s a market downturn, not so many deals are being done so the corporate practice gets hit. At the same time, litigation disputes tend to come to the fore in uncertain times as parties are keen to recover damages if the market is having wobble.

The company also has an impressive client list, having acted for consultancy EY and bank Macquarie Equipment Finance over matters of corporate crime.

As well as being in seven major cities in the UK including London and its base in Birmingham, Gateley has an office in Dubai as well. With its full service model and chief executive Michael Ward looking at acquisition targets, the firm has growth potential

The future

Going forward, Ward says that he intends to distribute up to 70% of profits after tax to shareholders, adding that depending on where the share price is, the yield should be around 4%.

Keith Baird, analyst at Cantor Fitzgerald, has forecast a 4.1% dividend yield for next year, along with a forward price-to-earnings of 17.1.

One slight risk could be Gordon Dadds, another law firm, intending to float in August. Ward is not concerned though, he says if others floated it would provide a benchmark for investors to help value his own firm.

Buy this full service law firm. It has good growth prospects and pays a healthy dividend.

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