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27 March 2020

Keystone Law -Trading in line but last two weeks impact.  Net cash £4.4m, Guidance withdrawn or year to Jan 21. Variable cost model makes company resilient.

23 September 2019

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Keystone Law  – H1 Results 

Share Price 525p

Mkt Cap £164m

Conflict Disclosure: No Holding

  • Results – Revenue up 15% to £23m and adjusted PBT also up 15% to £2.7m. EPS up in line to 6.3p. Interim div 3.2p and special div of 8p. Total lawyer numbers grew 11% to 355 over 6 months which represents 45 recruited and presumably 11 leaving as 45 were recruited in H1. Operating margin was 10.3% in H1 which is modestly below the 10.6% in H1 2018.  Cash is £6.5m. Outlook states the result is ahead of the board’s expectations and underpins confidence for the year.
  • Estimates – Full year PBT expectation is for £5.3m PBT, a 11.5% increase. This implies a reduction in H2 and looks perhaps 10% too low.
  • Valuation – PER 37.8X, Yield 1.8%.
  • Conclusion – This is forecasts to be a 10-15% growth business which trades on an eye watering multiple. Given the platform nature of the business the high rating may be justified. I would like to see some operating margin leverage to justify the rating which isn’t in these numbers.  If that comes through the high rating will be justified but in the absence of that the rating may be a little ahead of itself

8 May 2019

Keystone Law – FY Results 

Share Price 507p

Mkt Cap £158m

Disclosure: No Holding

  • Results Revenue up 35% to £42.7m and PBT up 56% to £5.1m.  Adjusted EPS up 42% to 13.4p and dividend of 9p per shares. Fee earners increased 20.6% to 277 and outlook statement says current year has started well and notes “confidence” to deliver another year of strong performance. The statement refers to investment in IT yet capex is de minimus at £39k which is always good to see.
  • Estimates Revenue for the year to Jan 2019 was expected to be £41m so results are a beat and PBT estimates were £4.8m (Actual – £5.1m with EPS set at 12.3p (Actual- 13.4p) following upgrades on the January trading statement. There may be room to tickle numbers up a little on this beat.
  • Valuation PER for January  2020 is 36X before upgrades with a yield of 1.9%.
  • Conclusion It is probably fair to expect double digit revenue growth going forwards and the 12% operating margin can also increase. Gateley makes a 17% operating margin.  If Keystone were to achieve this it would reduce the PER from 36 to 24X. That is still high and the shares are simply too high. It seems to happen when companies over deliver post float. Eventually gravity returns.