Signs of market “stabilising” but listed firms cut dividends

Stock exchange: Turnover up at Knights

There are “early signs” that the market is stabilising after the initial impact of lockdown saw a 20% drop in instructions, listed law firm Knights has told investors.

But it has decided not to pay any dividends for now, while fellow listed firm Rosenblatt decided to cut its dividend for the year.

The moves come after both Gateley and Ince cancelled planned dividend payouts, Keystone Law said it was “prudent” not to issue a dividend.

Knights took rapid action following lockdown, cutting the salaries of all staff earning over £30,000 and starting a redundancy exercise.

The update said this positioned the group “well” to trade through the crisis despite the drop in instructions in the last few weeks.

“The board is encouraged by early signs that market conditions have stabilised following the particular disruption experienced since early April.”

It said higher levels of disputes and employment work were mitigating a reduction in corporate transactions and “marginally lower levels of activity” in certain areas of real estate work.

Knights said it expected a 40% increase in turnover to £74m for the year ended 30 April 2020. Much of this has come from its multiple acquisitions – six since last November – but organic revenue growth was around 10%.

Underlying profit before tax is expected to be up 44% to £13.5m. “This reflects a strong performance through the second half of its financial year including through the initial lockdown period in March.

“However, the group felt the impact of the lockdown in April due to the economic environment and a stalling of activity by other (counterparty) law firms during April which resulted in short term disruption to the group’s ability to transact on behalf of its clients.”

Cash conversion has resulted in a “better than expected” year end net debt position of £15.9m – higher than a year earlier, when it was £14.1m, but lower than six months earlier (£17.1m).

“Knights, therefore, retains a strong balance sheet with a conservative gearing level and good liquidity.  Having recently extended its revolving credit facility with HSBC UK and Allied Irish Bank (GB) to £40m until June 2023, the group has a total of c.£24m in undrawn committed facilities for working capital purposes.”

Nonetheless, the board has decided it was “not appropriate” to recommend paying a dividend.

RBG Holdings plc – which owns City law firm Rosenblatt – issued a statement in early April saying that it had yet to experience any impact on its trading from Covid-19, but delayed a decision on paying an interim dividend for the last six months of 2019.

It had planned to pay 3p a share – on top of the 2p paid for the first six months – but said this week that following a review of trading, “regular stress tests on the group’s balance sheet”, and a reduction of all non-essential costs, it has decided to reduce the dividend to 1p so as to “maintain some financial flexibility”.

Meanwhile, leading conveyancing business Countrywide Property Lawyers (CPL) – part of the listed Countrywide Group – reported a strong 2019, with instructions up 17% and revenue 12%.

Countrywide Group’s 2019 annual report, published yesterday, said its conveyancing income rose from £24.4m to £27.4m, with EBITDA up 14%.

It completed 29,516 transactions, a 14% increase, giving it a market share of 1.7% (up from 1.2% in 2018), which the report said was “a direct consequence of our drive to improve sales of complementary services through our branch network”.

The number of property lawyers has increased 26% and legal assistants 6% – as it completed four “large” training academies during 2019, while the law firm’s net promoter score increased for the third year running to +61.

CPL claimed that, on average, it reached exchange 12 days faster than other firms used by the group’s sales clients.

Countrywide Group was in turnaround last year, and recorded a 3% drop in income to £498m, but it cut its losses from continuing operations from £224m in 2018 to £38m last year. Its sales and lettings business returned to profit.

It told investors that 2020 had started well before the Covid-19 crisis hit, and adjusted EBITDA for the first four months of the year was “significantly ahead of prior year for continuing operations, and the group’s cash position remains strong, with liquidity at 20 May 2020 of £60m”.

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