Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Legal firm is the ‘shooting star’ of an emerging sector
Thursday 01 Nov 2018 Author: Ian Conway

The legal sector is very much ‘of the moment’ in market terms with Anexo (ANX:AIM) and Knights Group (KGH:AIM) floating this summer and DWF hoping to join the market later this year.

Added to this is a flurry of takeover activity with Knights acquiring rival Spearing Waite last month and Gordon Dadds (GOR:AIM) announcing this week it has bought Ince & Co, making it the UK’s largest listed law firm by revenues.

The sector’s shooting star though is Keystone Law (KEYS:AIM). Floated in November 2017, the company’s shares had almost trebled by September thanks to a succession of better than expected results.


After the recent stock market sell-off the price has come back to more attractive levels and we think it’s time to buy this Top
100 challenger.

Keystone is an out-and-out growth stock. Revenue for the first half to July was up 30% to £20m while profit before tax and amortisation advanced 40% to £2.3m. Moreover all of this growth is organic and not fuelled by takeovers.

Given that the firm has more lawyers on its books and billings will be higher than in the first half, we suspect it will beat full-year forecasts of £40.5m in sales and £4.1m in pre-tax profit according to the consensus compiled by Refinitiv.

The secret to Keystone’s success is its platform model which allows lawyers to work more flexibly than traditional law firms with the full backing of its advanced support network.

This makes it attractive for legal eagles with top-flight clients to join. As of the end of July it had close to 300 senior lawyers on its books and in the last month alone a dozen more partner-level professionals have joined the firm.

Customers include financial firms like Nationwide and Royal Bank of Scotland (RBS), charities like Cancer Research and non-governmental organisations like the V&A Museum.


As well as flexibility, another key advantage of the ‘networked’ model is the ability for lawyers to refer work internally beyond their area of expertise and to support team-based projects within the firm.

This drives up revenues from existing clients at marginal cost and cross-selling on the platform now accounts for around 30% of billings.

Rival firms are catching onto Keystone’s approach but its continuous investment in technology and branding has enabled it to keep its first-mover advantage and continue to attract the best talent. 

It pays a small dividend, forecast by broker Arden to be 7.6p in the year to 31 January 2019 which equates to a 2.1% prospective yield. Investors should expect the bulk of their returns to come from capital gains. (IC)

‹ Previous2018-11-01Next ›