Keystone Law Share Discussion Threads

[boozey] 13/9/2023 17:58

It fell out of bed at the close but I think that was an anomaly. Keystone Law has been a very consistent performer over a long period.

[t-raider] 13/9/2023 14:40

Any confidence for interim results tomorrow ?

[wjccghcc] 24/4/2023 15:21

Actually, they don't say demand is falling. They say demand is falling for lawyer recruitment. That is actually good news for them as it makes their proposition more attractive vs traditional law firms for fee earners.

[tradertrev] 24/4/2023 12:55

The adjustments to profits include a removal of the cost savings enjoyed in the prior year due to the pandemic (eg reduced travelling and entertainment expenses) to make the YoY comparison look better. Don't remember them excluding these benefits when they accounced last year's results (although they did mention the effect).

[reapz2345] 24/4/2023 10:31

This company is valued on future growth, and a warning that demand is falling can only imply growth is going to reduce. Can see this going back down to 400p in the coming days

[maddox] 24/4/2023 09:55

Very solid results - beating the market analyst consensus forecasts. Highlights:

>> Revenue £75.3 million (2022: £69.6 million) growth of 8.1%;

>> PBT of £8.4 million (2022: £8.4 million);

>> Adjusted basic EPS of 24.2 pence, up 2.5% from 23.6 pence;

>> Cash conversion at 96.5% £9.3 million (2022: £10.0 million); debt-free;

>> Final dividend of 10.9p (2022: 11.2p), bringing total DPS for the year to 16.1p (2022: 15.7p).

Lawyer recruitment - the key growth driver - is under pressure in a highly competitive market. Hopefully, the return to face-to-face events and networking will help recruitment recover.

[tradertrev] 24/4/2023 09:36

Hmmm... not sure they're that good given the premium valuation. Very modest growth compared to the historic track record. Great cashflow though. Recruitment outlook is key, but not sure I'm reassured by the comment that the demand for lawyers is falling.

[tkamp] 24/4/2023 07:48

Good set of results. Keystone almost never disappoints, these guys know how to deliver. Hopefully principal recruitment can accelerate as 2023 progresses. The comments on the outlook sound encouraging in that respect.

[tradertrev] 28/9/2022 10:34

Decent director buy by the founder at 450p

[tkamp] 15/9/2022 12:06

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 11:08

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 12:36

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 14:50

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.

[maddox] 28/4/2022 12:57

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 12:33

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 11:28

Hi tkamp,

Why so? What were your concerns based upon?

[tkamp] 28/4/2022 10:43

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 10:22

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 08:50

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

[tkamp] 14/4/2022 13:40

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 10:24

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 09:27

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 08:51

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] 14/4/2022 00:19

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!