Beech: Expanding relationships with larger clients
Profits were up sharply at listed law firm Knights in the first half of its financial year, helped by an increase in interest on client monies, it reported yesterday.
The national firm’s share price continued to climb off the back of the news and, at 122p, is now nearly twice what it was six months ago, when it hit an all-time low of 64p.
In the six months to 31 October 2023, revenue increased by 6% to £75m, with organic growth up from 0.4% in the same six months of 2022 to 3.3%.
Underlying EBITDA increased by 25% to £18m, “driven by an increase in interest receivable on client monies of £3.8m”, with underlying profit before tax up 29% to nearly £12m. This meant the underlying profit margin rose from 12.6% to 15.4%.
“Pleasingly, excluding the more cyclical residential property and corporate work, the business achieved 9% organic growth, demonstrating a resilient performance from Knights’ diversified range of specialisms serving a broad spectrum of sectors,” investors were told.
“Growth in non-cyclical markets, particularly private wealth, dispute resolution and our growing regulatory team, helped to offset the impact of the subdued housing and corporate M&A markets.”
Staff churn fell, from 11% in 2022 to 6% last year, “meaning that our higher levels of recruitment will have a greater positive impact on our organic growth”.
Acquisition activity has been quieter, with nothing since St James Law in Newcastle and Baines Wilson in Carlisle back in May, but the recent deals have already provided “excellent platforms for organic growth”, with five partners already hired into each of Bristol – having bought Meade King a year ago – and Newcastle.
Knights’ net debt topped £38m after spending £7.5m on acquisition consideration and related costs, but in November it unveiled a £70m revolving credit facility.
Chief executive David Beech said: “Knights has delivered a good performance in the period, reflecting our sharp focus on driving profitability and organic growth and the resilience provided by our diversified services, capabilities and client base…
“We continue to expand our relationships with larger clients who increasingly recognise the benefits of Knights’ premium, diversified offering and collaborative, corporatised model.”
He added that the firm’s performance provided “a strong platform for future acquisitions”.
Our annual review of listed legal businesses, published last week, showed that Knights has steadied its share price after a crash in 2022 off the back of a profits warning, ending 2023 at 111p, 4p higher than where it started.
