Law firm provides positive trading update to the market

Keystone Law (KEYS:AIM)  400p

Gain to date: 8.1%

Original entry price: Buy at 370p, 20 December 2018

Shares in Top 100 ‘challenger’ law firm Keystone Law (KEYS:AIM) traded sharply higher on 21 January after the company revealed that full year profits will be ‘comfortably ahead of market expectations’.

Keystone’s platform model continues to attract experienced lawyers with new clients and strong trading in the second half of the firm’s financial year has driven ‘significant growth’ according to chief executive James Knight.

A key factor in Keystone’s growth is its ability to sell more and different services to existing clients as more lawyers join its network.

There is very little additional cost to Keystone when new lawyers join therefore its margins grow as fees rise and the business grows.

In the year to January 2018 the firm’s margin of earnings before interest, tax, depreciation and amortisation (EBITDA) to sales was 10.3% against 9% the previous year.

The EBITDA margin forecast for the year to the end of January 2019 was 11.5% but thanks to today’s announcement there is a good chance it will be higher.

SHARES SAYS: Given the size of the UK legal mid-market, over 10,000 lawyers, there is plenty of room for Keystone to keep growing the number of lawyers on its platform and therefore revenues and margins.

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