Shares in Top 100 ‘challenger’ law firm Keystone Law (KEYS:AIM) trade 14% higher at 388p after the company revealed that full year profits will be ‘comfortably ahead of market expectations’.
Keystone’s platform model continues to attract experienced lawyers with new clients and strong trading in the second half of the firm’s financial year has driven ‘significant growth’ according to chief executive James Knight.
He added: ‘We continue to make good strategic progress and we look forward to further updating the market in May.’
LAWYERS KEEP LAWYERING
We included Keystone as one of our top picks for 2019 at a price of 370p based on its ability to grow faster than the market expects.
Its platform model, which allows lawyers to join and share revenues with the firm, allows it to increase the number of fee-earning lawyers faster than the tradition legal model.
Lawyers can delegate their admin work to a team of 40 employees in an office in the heart of London’s legal district, leaving them able to focus on business development and actual legal work.
They are also plugged in to Keystone’s own software platform which lets them talk to the central office and each other quickly and easily, helping to drive co-operation and cross-selling.
A key factor in Keystone’s growth is its ability to sell more and different services to existing clients as more lawyers join its network.
MARGINS KEEP GROWING
There is very little additional cost to Keystone when new lawyers join therefore its margins grow as fees rise and the business grows.
In the year to January 2018 the firm’s margin of earnings before interest, tax, depreciation and amortisation (ebitda) to sales was 10.3% against 9% the previous year.
The ebitda margin forecast for the year to the end of January 2019 was 11.5% but thanks to today’s announcement it’s a safe bet it will be higher.
Given the size of the UK legal mid-market, over 10,000 lawyers, there is plenty of room for Keystone to keep growing the number of lawyers on its platform and therefore revenues and margins.
