Top 100 law firm Keystone Law (KEYS:AIM) was set up in 2002 by a group of lawyers who were tired of the lack of modern thinking and creativity in traditional firms.

Building a platform model using technology and modern working practices, they hoped that other lawyers would see the attraction and join them.

Scroll forward to July 2018 and Keystone had almost 300 lawyers servicing thousands of clients across the UK.

By the time the company reports its full year results next May that number is likely to be significantly higher too.

A large part of the firm’s success is its investment in technology. Its ‘Keyed In’ platform provides insurance, compliance, marketing, sales, administration support, paralegals and continuous training.

For high-calibre lawyers and teams with a proven client following, the platform model allows them to plug in and operate as if they were part of a larger firm, outsourcing the support function and choosing where and when they work.

There are no fixed salaries, instead Keystone collects the billings from its lawyers’ clients and retains 25% for its services, passing through 75% of the billings. This is a higher percentage than many comparable businesses and offers the chance of significant upside for lawyers who are successful.

According to the firm’s own figures, of the applicants who are successful 90% generate a sustainable business with an average billing per new lawyer of £150,000.

The UK legal services market is the world’s second largest at over £30bn in fees per year. The mid-market, which Keystone is targeting, is worth close to £9bn in fees alone.

From 2016 to 2018, Keystone’s revenues have risen at a compound annual growth rate of 25%, above the average for law firms. Unlike many of its listed rivals, this growth has been achieved with no acquisitions.

Given first half sales of £20m and an increased number of lawyers and billings in the second half it looks a reasonable assumption that Keystone could beat analysts’ full year revenue forecasts of £40m.

As Keystone’s costs are minimal, almost all of the increase in revenues drops through to profit which means that analysts may have to raise their forecasts when it reports.

The firm joined AIM in November 2017 following a heavily over-subscribed placing at 160p and the shares have been popular with investors ever since, reaching an intraday high of 460p as recently as this September.

Since then the shares have retraced to 370p as markets have rotated towards value stocks, which gives long-term investors a window to buy into a continuing growth story today.

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