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DWF shares return to pre-Covid levels on back of profits and bolt-ons

Knowles: Very clear differentiators

Shares in DWF jumped 12% to their pre-Covid level after the only law firm listed on the main London Stock Exchange revealed a strong performance in the last financial year.

With the firm also unveiling two bolt-on acquisitions, the share price closed at 107p, the highest since mid-March 2020. It listed a year earlier at 122p.

In a trading update, DWF said it expected group revenue for the year to 30 April 2021 to rise 13% to £338m, of which 8% was organic growth.

Adjusted profit before tax of £34m exceeded market expectations – which it put at £29m – while improved cash flow generation meant lock-up days fell from 206 to 186. All divisions delivered growth in turnover and gross profit margin.

Net debt fell from £65m to £61m “despite one-off outflows for deferred consideration and acquisition related payments of £17m”. Only another £7m remains to be paid for past acquisitions in the coming year.

DWF has acquired compliance training business Zing 365 Holdings for £1.8m, comprising £800,000 in cash, £800,000 in shares over a three-year lock-up period, and the assumption of £200,000 in debt.

It should also this week complete the acquisition of BCA Claims & Consulting, trading as Barnescraig & Associates, a Canadian insurance claims and loss adjusting business, for £2.2m, with £900,000 in cash on completion and the rest over the following two years.

The acquisitions are expected to add £3m of revenue and £500,000 of adjusted profit before tax in the coming year.

DWF told investors: “As a result of the group’s profit transformation, strong cash flow and positive outlook, the board currently anticipates recommending a final dividend for FY21 of 3p per share, taking the total FY21 dividend to 4.5p per share.

“This is the first step towards normalising the dividend towards the target pay-out ratio of up to 70% of the group’s profit after tax.”

Chief executive Sir Nigel Knowles, who marks his first year in the role this week, said: “We have grown the business, transformed our profitability, improved our operational efficiency and strengthened our balance sheet notwithstanding the impact of Covid-19 during the year…

“We have very clear differentiators versus the rest of the legal sector: we are the only main market listed global legal business, we have a unique client proposition which offers integrated legal and business services, and in Mindcrest we are the only law firm to own a market-leading alternative legal services provider.”

Sir Nigel added that “we have continued to align our global businesses with our core strategy”.

In Australia, that has meant closing its legal advisory operations in Melbourne, Sydney and Newcastle, leaving just an office in Brisbane, while also retaining its connected services offering in Sydney, Melbourne and Brisbane.

It has also recently signed exclusive associations with the Singaporean firm Eldan Law and Thomson Wilks in South Africa. “Fee-earning work is underway with these two firms and we see promising opportunities for more,” said Sir Nigel.

Meanwhile, in an update issued today, the UK’s first listed law firm, Gateley, said trading continued to improve throughout the second half of its 2021 financial year, ending on 30 April, meaning that revenue for the year would be not less than £120m, 9% up on the 2020.

“Prudent cost and cash management measures, initiated by the board at the start of the pandemic and augmented by the stronger than anticipated H2 trading, have yielded a net cash position at 30 April 2021 of £20m, significantly ahead of management’s previous expectations.”

Profit before tax should be at least £16m, up 8% on last year.

Gateley’s share price has recovered to 203p at the time of writing, close to the all-time high of 218p recorded in February 2020, and as a result the firm is recommencing dividend payments.