Hits: 20

9 July 2020

DWF – Trading Update

Share Price 57p

Mkt Cap £186m

Conflict Disclosure: No Holding

  • Update Trading in the first 2 months of the new year has been ahead of budget with organic revenue growth of 6% contributing to 21% revenue growth. Net debt has reduced to £64m with cash of £17.9m and facilities of £122m. Outlook cautiously optimistic.
  • Estimates A modest revenue reduction is anticipated for the full year to April 2020 but the last quarter is the most significant so it may be early for upgrades.
  • Valuation The PE of 11.4 is modestly ahead of Gateley at 10.9X and RBG at 8X (though forecasts remain uncertain at RBG)
  • Conclusion There seems to be general trend that companies downgraded estimates during COVID and the recovery is coming quickly. These shares remain 59% below their pre COVID levels.  Not sure why they don’t recover fully.

29 May 2020

DWF – Trading Update & CEO change

Share Price 81p

Mkt Cap £263m

Conflict Disclosure: No Holding

  • Update – CEO standing down with immediate effect and Chairman stepping in as interim CEO. The impact of COVID 19 has been greater than anticipated and the underlying EBITDA for the year to April is now expected to be lower than previously anticipated at £21m. Activity was lower than expected in April but collections were strong resulting in lower net debt at £65m against £122m of facilities. Insurance was resilient, International grew 50% but actions have been taken to optimise margin, Connected was lower than expected and Commercial underperformed. May has seen an improved level of activity.
  • Estimates The house broker is reducing revenue estimates for 2020 by 5% from £317m to £301m and adjusted EBITDA by 43% from £37m to £21m.
  • Valuation On reduced forecasts the PE is 29.6, previously 12.5X 
  • Conclusion I expect the shares may decline significantly. Perhaps as much as forecasts.

27 March 2020

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DWF Group – COVID 19 Update 

Share Price 102p

Mkt Cap £331m

Conflict Disclosure: No Holding

  • Update – Revenue to April 20 below expectations. £10m cost savings for 2021, £13.5m in 2022. Dividend decision deferred.  Slower ramp up for new joiners. Net debt higher than anticipated. Expects to operate within the £80m debt facility limit. Seeking additional contingency facilities. Well placed.
  • Balance Sheet – NAV £41m and the statement says that debt could reach £80m, which compares to £48m at April 2019 and £69m at October 2019. Forecast was for £42m PBT to April 20. Debtor days at October were 105, absorbing £170m of capital.

11 December 2019

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DWF Group – H1 Results  & Acquisition 

Share Price 120p

Mkt Cap £361m

Conflict Disclosure: No Holding

  • Results.Revenues were up 10% to £146.8m while the gross margin tempered to 50.2% gicing an 8% increase in gross profit. EBITDA was up 4% to £15.5m but adjusted EBITDA was up 19% to £20.1m. The largest adjusting item here is share based payments of £4.4m which is questionable. Insurance services revenues were up10%, Connected Services revenues up 18%, International up 28%, and Commercial was flat. Net debt was £49.5m. H2 is expected to be stronger following H1 investments and the company has a strong pipeline of M&A targets.
  • Acquisition Spanish law firm RCD is acquired for £42.5m of which £6.2m is payable in cash up front. That is 1.3X revenue or 6.25X adjusted EBITDA.
  • Estimates. H1 revenues were 47% of the full year so underlying trading looks in line with expectations.
  • Valuation.  The company trades at a PER of 11.3X and yields 6%.  7.4X EBITDA adjusted and 1.2X revenue. The acquisition looks earnings neutral or possibly modestly enhancing but not materially due to the relatively small amount of cash consideration.
  • Conclusion. It all appears to be doing what it says on the tin. There is one partner with 5m shares being released from IPO lock ups due to personal circumstances. Probably good for another year or two but with debt increasing and a strong M&A pipeline it wouldn’t surprise to see a placing in the next 6 months.

18 November 2019

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DWF Group Plc –Trading Update

Share Price 125p

Mkt Cap £376m

Conflict Disclosure: No Holding

  • Trading Update  H1 to October will show 10% revenue growth, largely organic and a 16% reduction in net debt. International and connected services showed 29% and 18% growth respectively and 5% from Insurance and Commercial services. H2 pipeline is robust and there is a pipeline of carefully chosen M&A targets.
  • Estimates Last year the company delivered £272m revenue and forecasts appear to anticipate £312m for the year to April 2020, which is 15% growth, compared to 10% growth achieved in H1. When last year’s results were announced in July the house broker downgraded forecasts so this upbeat statement looks like it will be accompanied by a downgrade, which is a shame to have two downgrades in the first year post IPO.
  • Valuation PER 11.7X, yield 5.7%.
  • Conclusion. The lawyers are starting to establish themselves an upgrade and downgrade stocks. Knights (19.8X PE) and Keystone (36XPE) look like the upgrade stocks while Ince Group (5X PE) and DWF (11.7X PE) look like the over optimistic stocks. Gateley is the reliable, if slightly dull one ( 11.5X PE) while RBG makes it numbers by selling cases (11.9X PE). I suspect Gateley and Knights may be the outperformers.

31 July 2019

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DWF – FY Results  

Share Price 121p

Mkt Cap £363m

Conflict Disclosure: No Holding

  • Results 15% revenue increase to £272m. 9% EBITDA increase to £33.6m and 13% Adjusted PBT increase to £26.1m which is EPS of 6.8p. Net debt is £35.3m. The company notes a good start to year and a confident outlook.
  • Estimates Forecasts were for a 17% increase in turnover to £277m and £26.1m PBT. An uplift to £41.1m is anticipated in the year to April 2020
  • Valuation PER 11.1X Yield 6.1%.
  • Conclusion This a diversified play on the legal market.  The reliance on insurance is retarding the growth but it looks reasonably cheap and should be sustainable. For a while.