Knights’ share price dives after profits warning

Beech: Frustrated

Shares in law firm consolidator Knights have nearly halved in early trading after it issued a profits warning.

The shares opened the day at 365p and had tumbled to 192p at the time of writing.

In a trading update issued this morning, Knights said it typically has a strong second half, particularly in the fourth quarter, and so had anticipated “substantial growth following a good first half in which the group grew organically by 9%”.

However, “a continuation of the impact of Omicron and recent macro conditions have slowed growth to a greater extent than anticipated”.

The persistent effects of Omicron had resulted in “greater illness rates amongst our people, resulting in the business not benefitting from a faster return to office working and the consequent advantages of our team-based culture”.

Business confidence had also softened, “possibly due to concerns around the strength of the economy, such that there has been a slowdown in corporate work”.

As a result, Knights said activity rates had increased, but not as much as expected. The group is now expected to deliver revenue of around £126m and underlying profit before tax of £18m for the year ending 30 April 2022.

In the 2020/21 financial year, Knights recorded turnover of £103m and underlying profit before tax of £18m.

In the current year, Knights has made two acquisitions which will have contributed to the increase in turnover: Keeble Hawson in Sheffield and Teesside firm Archers. More recently, it announced a deal to buy York and Lincoln firm Langleys.

“The group has not seen any significant losses of clients or fee-earners,” it stressed, adding: “Given the current uncertainty regarding both the economic conditions and the speed of transitioning people more fully back into offices, it is now prudent to anticipate organic growth of c.5% for the year ending 30 April 2023, with margins rebuilding to historic levels over time.”

Chief executive David Beech said: “Following a good first half, it is frustrating that recent events have held the business back from delivering a stronger performance in the second half.

“Beyond this near-term uncertainty, the opportunity to cement our leading position in key legal services markets outside London remains substantial and we are as well placed as ever to deliver on that opportunity.”

The share price has been upwardly mobile since Knights listed in June 2018 on 145p. It closed 2019 at 334p, 2020 at 393.5p and 2021 at 410p. The all-time high was 490p in September 2020.

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