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Burford and Gateley beat the market but most legal stocks underperformed in 2016

Shares: most legal stocks went down

Most listed UK businesses with a strong legal element did not prove good investments in 2016, although litigation finance business Burford Capital and national law firm Gateley both bucked the trend in eye-catching fashion, a Legal Futures analysis has found.

The 2016 findings mark a major turnaround in fortunes for the law’s UK-listed businesses, all but one of which are on AIM, after many outperformed the wider market in 2015 [1].

While both the FTSE 100 and FTSE All-Share indicies both recorded double-digit increases during 2016, Burford was by far the best legal performer, its share price tripling over the 12 months to 572.5p.

In the month since, it has rocketed further to 720p in the wake of its acquisition of US litigation financier Gerchen Keller Capital [2].

Burford launched an alternative business structure [3] (ABS) last October, while it posted strong half-year results [4] that forecast that it would benefit from the weak post-referendum pound. 

Gateley listed at 95p in June 2015 and for the first year its share price barely moved, starting 2016 at 102p. But in the wake of good annual results in July [5], it started climbing, ending the year up 28% at 130p. It closed on Friday at 136p.

The other stand-out performer was ULS Technology, which provides technology and panel management for conveyancers – including white-labelling MoneySupermarket’s conveyancing service – and also owns well-known legal regulation consultancy Legal Eye. Its share price rose 55% during 2016.

In late 2016, its share price jumped after buying Conveyancing Alliance [6] for an initial £7.2m as part of its strategy to become the country’s leading handler of conveyancing.

Perhaps unsurprisingly, the stocks that have a strong personal injury element struggled in 2016, with the government finally unveiling its reform plans in November.

Having been 2015’s stand-out legal performer, Redde plc, the accident management business that owns NewLaw Solicitors, saw its share price drop 21%, although its end-of-year level of 163p (now 173p) is still historically a good position for Redde.

NAHL Group – which owns National Accident Helpline – saw its shares slide 39%, even though it has been diversifying and has also announced trials to rework its model [7] for personal injury work.

The biggest loser was Fairpoint, whose shares have been sliding steadily since the PI reforms were first announced in late November 2015, when they were riding high at 190p. It lost 88% of its share value in 2016, starting the year at 136p and ending it at 16.8p.

Fairpoint took a hit after the EU referendum result and then again in December after issuing a profits warning [8], following which its chief executive stood down [9]. The company is restructuring, closing down its debt management business [10] to focus almost exclusively on legal services, and the changes appear to have taken their toll during the process.

In Australia, Slater & Gordon’s tale of woe continued, losing 73% of its share value in 2016, finishing on 22.5c.

The other listed law firm in Australia, Shine Lawyers, another personal injury specialist, had a painful year as well, dropping from A$1.97 to 75c following restatement of its work in progress, disbursements and debtors that led to profits halving.

The other two UK shares we looked at were litigation funder Juridica, which fell 62% during 2016, but perhaps not surprisingly given that it is being wound down; and property services business Countrywide plc, which owns a major firm of licensed conveyancers and is the only one of these companies listed on the main market, which crashed 56% over the year, driven by post-referendum fears for the property market.

This analysis did not consider those businesses for which legal services are only a tiny proportion of their activity, such as the large insurance companies that own ABSs, Capita – owner of Optima Legal – and New York-listed Markel, which owns LHS Solicitors.