“No upper limit” – Ambitious Keystone returns cash to shareholders


Keystone: The team on the day trading started (James Knight fourth from right)

Listed firm Keystone Law is to pay a special divided to shareholders on the back of a successful year which saw profit jump by 52%.

The consultancy law firm’s finance chief said there was “no upper limit” to how big it could grow.

Keystone recorded turnover up 27% to £70m in the year to 31 January – representing annual growth of 22% in each of the last five years – with profits before tax hitting £9.1m. This is a profit margin of 13%, up from 11% last year.

As well as a final ordinary dividend of 11.2p, Keystone is paying a special dividend of 10p, the second time it has done this since going public.

Finance director Ashley Miller explained to Legal Futures that the Keystone model – cash generative, non-acquisitive and capital light – meant it had “limited opportunities” to use cash and so the board had decided to return it to shareholders.

There was a dip in the number of qualified applicants to join the firm in the year – down from 253 to 228 – while it made 76 offers (down from 81) and 56 candidates accepted offers (compared to 70 in 2021).

Shareholders were told: “The high level of demand across the industry has seen many lawyers simply too busy to consider moving roles, whilst the timing of changes in government restrictions in response to the evolution of the pandemic has also played its part in influencing candidates’ behaviour.”

In all, at the year end, Keystone had 394 principals (up from 369) and 87 other fee-earners, mostly employed by principals in ‘pods’; it records a 5% annual churn, mainly due to retirement and says that 90% of new lawyers generate sustainable practices, with average billing per new principal of around £175,000.

Chief executive James Knight said its model of “technology enabled remote working and flexibility at its core has ensured that our lawyers have been perfectly placed to capitalise on the high levels of client demand throughout the period”.

Keystone’s stock has been on a long upward trajectory since listing, peaking at 910p in January this year, before tumbling to 580p in March. It was up 3% at 710p as the time of writing.

Mr Knight attributed this recent volatility to a knock-on effect of fellow listed law firm Knights’ share price crash following a profit warning – despite its very different model – and profit-taking following Russia’s invasion of Ukraine:

“Share prices that quickly go up are the ones that people take profit on when there’s uncertainty,” he said, adding: “We’re in it for the long term so we don’t get upset by short-term [fluctuations].”

Mr Miller said there was “no upper limit” on how large Keystone could get – the firm targets a mid-market that it values at £9bn and says is occupied by 185 law firms with 50,000 fee-earners.

“There are plenty of lawyers out there for us to recruit to become exceedingly large,” he said. The lack of office space and working capital constraints meant “the potential is there to be enormous – our model and systems are completely scalable”.

He said the last year had been “particularly strong” given the strength of demand for legal advice. With it set to “soften a bit”, market expectations for the coming two years were not as high and Mr Miller said he was “comfortable” with predictions that revenue would hit £72m in a year’s time and £79m the year after, with profits of £8.6m and £9.5m respectively.




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