These are a sparkling set of results (FY to 30Jan22) , particularly in the circumstances of Covid: Really demonstrates the strength in the Keystone Law (LON:KEYS)'s platform approach driving high-quality earnings. KEYS offer established lawyers the ability to operate on a self-employed basis with a supporting infrastructure (the platform model) rather akin to a franchise: “No targets, no politics, no pressure” is their pitch to Lawyers and it is being very successful in attracting them. Now accepting that Covid might have played a role - I think that these results show a very attractive high-quality firm.
Whilst the growth in the number of Principle Lawyers recruited grew by a respectable 6.7% during the year - the revenue grew 26.5% in a strong legal services market. However, this translated into PBT growth of 55% and basic eps up 42.7% showing superior Operational Gearing and Cash generation - with 102% cash conversion.
The final dividend of 11.2p gives a +48% increased return for the full year and a 10p Special Dividend on-top.
KEYS' capital-light and operationally-light platform model is clearly strategically strong. Based on the outlook statement, it remains attractive:
>> 'The current financial year has started well with lawyers remaining busy.
>> We have made a fair start on recruitment, continuing to attract high quality candidates.
>> Well placed to deliver another strong performance.'
The Legal Services market is clearly very strong at the moment but the question in my mind is, what role did Covid play ? Keystone Law (LON:KEYS) has the attraction of supporting a Working From Home (WFH)/Hybrid life-style - so may have directly benefitted from this Covid-driven accelerated trend; it may also have reduced some operational costs. However, Covid appears to have damped to some degree their recruitment - as networking was supressed during lock-downs. So, difficult to judge either way.
Accepting a possible Covid benefit and a supportive market background - business model looks strong and it's unique in a very large Sector - so plenty of headroom for further growth. So, IMHO we have in KEYS a high-quality growth stock and the investment case looks persuasive - if you are prepared to swallow the valuation.
Regards, Maddox
(I'm long KEYS - so talking my book - so DYOR and challenge my assertions please)
