Keystone Law Share Discussion Threads

[tradertrev] 28/9/2022 09:34

Decent director buy by the founder at 450p

[tkamp] 15/9/2022 11:06

Results are generally good but only weakness is the number of principals has barely grown over the last 6 months, which is somewhat concerning

[tradertrev] 08/8/2022 10:08

Where is the bottom here?
Post 164 above is yet another good reason why you should never take any notice of what the IC (or Chronic Investor as better known) writes. Any talent there ever was there left many years ago.

[alphabeta4] 10/5/2022 11:36

I can only assume Maddox IC are referring to keys central staff, but yes, in terms of lawyer wage inflation that would help keys revenue and will be a bigger number than their central costs increase.

[maddox] 28/4/2022 13:50

Investors Chronicle KEYS Buy 705p 'Keystone stands out from legal crowd'
'Law firm’s clever business delivers strong growth, in spite of tight jobs market'

The journalist Jemma Slingo says 'Wage inflation is a big problem for law firms, whose success is rooted in the quality of their solicitors. So far, however, Keystone seems to have dodged the worst.'

Surely, but tell me if I'm wrong, KEYS benefits from wage inflation - as they don't pay their Lawyers - they take a slice of their income.

httPs://www.investorschronicle.co.uk/news/2022/04/28/keystone-stands-out-from-legal-crowd/

[maddox] 28/4/2022 11:57

Thanks tkamp,

The Knights (KGH)update now appears anomalous, perhaps attributing to the market what was more an in-house problem? RBGP's subsequent strong results put that concern to rest in my mind. Also, I may be wrong, but I doubt that Russian Oligarchs are driving KEYS' Lawyers' revenue.

As to recession, it's the largely uncorrelated nature of the Legal Services Market that I find appealing. Some parts of the Legal Services Sector do well out of a poor business climate and disruption (Litigation, Family, Restructuring, Insolvency) that balance those that are supressed (Property, Corporate activity).

How KEYS respond to changing market conditions is definitely something to keep an eye on.

Thanks for your thoughts again, always good to have different perspectives.

Regards Maddox

[tkamp] 28/4/2022 11:33

Well just generally speaking all economic indicators are looking troublesome and seems likely the word will go into recession soon. Couple that with the outflow of Russians out of the UK/London (who I'm sure provide a fair share of legal work) and the weak outlook from Knights a while back and it seemed fairly plausible Keystone too would see weakened demand

[maddox] 28/4/2022 10:28

Hi tkamp,

Why so? What were your concerns based upon?

[tkamp] 28/4/2022 09:43

Encouraging to hear that the new year has also started well for them, I had some concerns they might be seeing weaker demand right now

[maddox] 28/4/2022 09:22

These are a sparkling set of results (FY to 30Jan22) - particularly in the circumstances of Covid. Really demonstrates the strength in the KEYS platform approach driving high-quality earnings.

Whilst the growth in the number of Principle Lawyers recruited grew by a respectable 6.7% during the year the revenue grew 26.5% in a strong legal services market. However, this translated into PBT growth of 55% and basic eps up 42.7% showing superior Operational Gearing and Cash generation - 102% cash conversion. The final dividend of 11.2p gives a +48% for the full year and a 10p Special Dividend on-top.

KEYS' capital-light and operationally-light platform model is clearly strategically strong. Based on the outlook statement, it remains attractive:

>> The current financial year has started well with lawyers remaining busy.

>> We have made a fair start on recruitment, continuing to attract high quality candidates.

>> Well placed to deliver another strong performance.

Can anyone find something of concern in these results - because I can't?

Regards, Maddox

[investing2retire] 28/4/2022 07:50

ive bought back in after todays update. looks good especially with the special divi

[tkamp] 14/4/2022 12:40

It's not easy to forecast growth indeed, but it never is for pretty much any company. There's 2 things I think you should take into consideration:
1) Keystone operates in a very large TAM and has penetrated only a tiny portion of it. There's many thousands of lawyers that Keystone can go after vs. the ~300 it has today
2) Keystone has a great track record of executing on growth, management has proven that they know what they're doing
Putting those 2 together makes me confident that Keystone's historic growth rate gives at least some guidance for future growth and that they can probably keep growing revenues at 10-15% per year for many years to come (and profits at a somewhat higher level)

[maddox] 14/4/2022 09:24

Hi tradertrev, tkamp

Hmmm good thoughts - thanks.

I regard a high eps is a reflection of perceived current versus future value by investors, often compounded by tightly held stock. We know that the results are going to be good which would have moved the eps in the right direction - and still will. So, why has sentiment changed?

So, it probably comes down to their USP as you say - is it sustainable? They are offering more than just WFH - “No targets, no politics, no pressure” is their pitch to Lawyers and the ability to operate on a self-employed basis with a supporting infrastructure. I can see the appeal in that offering - its already been successful and I can't see anything that seriously challenges it.

Clearly, the legal services market is booming - and its difficult to understand KGH's recent RNS commentary. The circumstances leading to this demand may wain but probably not over the short-term timeframe.

The problem that remains, as I see it, is that its difficult to project the two revenue drivers very far out into the future. M&A activity is pretty erratic for example and legal services generally appear uncorrelated to wider market conditions (often seen as a plus point). Transparency I feel is thus limited.

As still a relatively new sector of the stock market it would be good to identify some leading indicators that guide investors as to growth (or otherwise) prospects.
I'd welcome anyone offering insights, ideas and suggestions on this?

Regards Maddox

[tkamp] 14/4/2022 08:27

Keystone's USP isn't remote working though, or it's only a tiny part of it. No lawyer left their old job to join Keystone simply so that they could work from their own home, they joined Keystone because they could basically 'be their own boss', i.e. only accept work and clients they want to work with, keep a fixed share of the earnings derived from these clients, and don't have to participate in office politics to secure a promotion / meet your annual targets, etc. That is something Keystone offers that traditional law firms do not offer, and likely never will. And I am pretty sure the attraction of that value proposition of being your own boss has only strengthened since COVID.

[tradertrev] 14/4/2022 07:51

Maddox, just a thought but 910p and a P/E ratio approaching 40x was probably overvalued at a time when long-duration growth stocks came under pressure. As bond yields continue to rise, this pressure could continue.
Although a great business, personally I am a little concerned that their USP in recruiting lawyers to their system (flexible working, very often from home) has been neutered by the widespread adoption of hybrid working practices by most other law firms.

[maddox] 13/4/2022 23:19

I'm finding it difficult to rationalise the 40% decline from a 52 week-high 910p 21 Jan just following a 'materially ahead of current market expectations' (18 Jan) to 540p on 22 Mar. Perhaps the KGH dismal RNS influenced but that wasn't until the 22 Mar since when we've recovered to 690p today 24% off 52 w/h.

[typo56] 22/3/2022 16:21

KGH were also quite positive in January and they've also had directors selling in recent weeks. Insider dealing? You decide!

[tkamp] 22/3/2022 16:19

Given how upbeat the last trading update was and that there have been no insider sales since then I am not very worried. I sold out of Keystone shares a year ago but have just bought back in. Shares now trade at the lowest valuation since years

[primarch1] 22/3/2022 15:37

The recent update was update was upbeat so shouldn't be anything to worry about,however the directors have been selling off lately so worth watching what comes up in the finals

[mrcwm] 22/3/2022 14:36

Profit warning from Knights Group Holdings (KGH) with a similar business model. KGH down 48% today.

[tkamp] 22/3/2022 14:09

Does anyone know what is up with the share price today?

[km18] 21/2/2022 18:26

...from last year...

Company overview:
Keystone Law was established in 2002 by a group of pioneering lawyers. The firm bases its business model on modern working practices and offers bespoke and dynamic service. KEYS is serving thousands of clients , including RBS, Siemens, Bosch, BBC, through its 350 lawyers and 45 support staff. In their latest report the company confirms its commitment to boost organic growth through recruitment with principles increase from 369 to 386 and pod members from 74 to 83 during the interim. This is further supported by a close look at the financials, as the last acquisition was in 2015. The goodwill has not been impaired during the last 5 years and should be observed with caution, but with a net income matching the whole goodwill amount, this should not drive the bottom line in the red.
Fundamentals of the company are a joy to look at. Revenue CAGR is currently at 21.4%, which is transformed to a whopping 51.1% on net profit level. EPS has grown every year in the past 6 years and ROCE is at 30.7%. The issue is that you pay for this outstanding performance. P/E for 2020 was at 55.4, which if they managed to meet the growth pencilled on Stockopedia will drop to 43 for this period and 38.3 in 2023
The interim report from today presents a growth in revenues of 37.6% compared to last year’s (H1 2021 for them as financial year ends in January) equivalent period, at £33.7m. PBT is 118% up from the H1 2021 at £4.3m and EPS of 10.8p is 109% ahead. Keystone saw strong cash generation and remained debt free. The firm is enjoying high activity levels across all practices and the outlook is for it to remain “buoyant”. With the restrictions relaxing and returning to office the management foresees performance will be “materially ahead of current market expectations” for the rest of the year.

Short analysis:

Cash increased due to strong CFO even in the presence of repayments of lease liabilities
CA/CL = 1.67
Cash ratio = 0.46
Interest coverage = 90.06
P/S TTM = 4.33, which is on the expensive side of the industry
BV ps (2020) = 53, growing at 94.8% CAGR
Operating profit
Gross profit Margin 26.5%, vs 25.8% H1 2021...

...from WealthOracleAM

https://wealthoracle.co.uk/detailed-result-full/KEYS/142

[woodyjmw] 21/12/2021 16:40

Is the share price still alive? Flat lined.

[tomps2] 26/11/2021 08:37

Alexandra Jackson Interview with PIWORLD


Alexandra Jackson mentions Keystone Law #KEYS at 6m05s in the latest PIWORLD interview

Watch the video here: Https://www.piworld.co.uk/education-videos/piworld-interview-with-alexander-jackson-selecting-winning-stocks/

Or listen to the podcast here: Https://piworld.podbean.com/e/piworld-interview-with-alexander-jackson-selecting-winning-stocks/

[alphabeta4] 17/9/2021 10:29

Agreed, I have good value to £9.64 even if H2 is the same pbt as H1 and £10.51 if H2 revenue comes in at £36m.