“Slightly cooling legal market” is helping us recruit, says listed firm

Knight: Revenue per principal on the rise

A slightly cooling legal market is favouring listed fee-share firm Keystone Law, its chief executive said today on the back of strong half-year results.

The AIM-listed law firm reported revenue growth of 15% to £42.3m for the six months to 31 July, with adjusted profit before tax up 25% to £5.7m.

Some 25 principals joined in the six months, taking the total to 415, with 523 fee-earners in total when those employed by principals are included.

The group remains debt-free, with net cash of £11.3m. Keystone declared an interim dividend of 5.8p (compared to 5.2p a year ago) and a special dividend of 12.5p, the third time surplus cash on the balance sheet has led it to do this since listing.

Chief executive James Knight told Legal Futures that, “on the back of a slightly cooling in the market”, other law firms were recruiting “less aggressively” than in the past year or two.

It was also leading to more pressure on lawyers to return to this office, while it was becoming harder for them to hit targets, meaning “all the old pressures that have not been around for a while are returning”. This made lawyers “more inclined” to seek out a firm like Keystone.

The results said strong client demand and rate rises last year drove increased revenue per principal up 12% to £104,000.

While not comparable with City firms, given that plenty do still not work full-time, Mr Knight said this was a positive trend and also reflected how most lawyers who now joined Keystone worked full-time, whereas the firm was originally seen as a way out for those who wanted to work part-time.

Despite strong results for some considerable time – and the announcement predicted that the full-year results would be “comfortably ahead of current market expectations” – Keystone’s share price has been going down. It jumped 14% this morning following the results, however.

From a high of 896p in late January 2022, it was 405p a year later. It then went up again to 538p in March before closing yesterday at 410p.

Mr Knight said the recent fall reflected a “wider malaise” across the AIM market and particularly companies with smaller capitalisations. “These things come in waves, they don’t worry us,” he said.

He added that there was no “discernable” contagion from what happened in the spring with fellow listed firm Ince & Co.

Separately, the first listed law firm, Gateley, last week unveiled its results for the year to 30 April 2023, with group revenue up 19% to £163m. When acquisitions were stripped out, organic revenue growth was 6.2%, comprising 4.9% for legal services and 18.4% for its consultancy services.

Consultancy services – Gateley has built an ever-growing stable of associated professional services through acquisition – now make up 26% of the group’s revenue.

Group profit before tax dived 40% to £16m, although underlying profit was up 16% to £25m. At the same time, the underlying profit margin dropping by a percentage point to 15.4%, which Gateley said, given inflationary pressures, was a good outcome.

However, the audited result was below the threshold triggering discretionary staff bonus payments.

The current trading year featured “a good pipeline of work” and an “encouraging pipeline of M&A opportunities”, investors heard.

Chief executive Rod Waldie described it as a “strong performance, set against a challenging macro-economic backdrop throughout the second half” of the financial year.

The market was told a “mid-year pause” caused by the mini-budget also caused a delay in the completion of a number of assignments, pushing the billing point, and revenue recognition, into the current year.

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