DWF Group – making real progress

Today I return to one of my previous profiled stocks.

It is ambitious, it is growing and is very well managed.

Furthermore, compared to its peers, its shares are undervalued.

The business

The DWF Group (LON:DWF) is a leading global provider of integrated legal and business services.

It has an Integrated Legal Management approach that seeks to deliver greater efficiency, price certainty and transparency for its clients, without compromising on quality and service.

The group provides integrated legal and business services on a global scale through its three offerings – Legal Advisory, Mindcrest and Connected Services – across its eight key sectors.

Its aim is to seamlessly combine any number of its services to deliver bespoke solutions for its diverse clients.

The group employs some 4,000 people across its thirty locations globally.

It has five strategic associations – in Turkey, Singapore, Saudi Arabia, South Africa and in the US.

Its services cover eight sectors – consumer, energy and natural resources, financial services, government and public sector, technology, media and communications, and finally, transport.

The three offerings

The Legal Advisory Services division provides premium legal advice and commercial intelligence services.

Its services include banking, finance and restructuring, commercial, regulatory and data, corporate, dispute resolution, employment and pensions, insurance real estate and tax and private capital.

The Mindcrest Outsourced and process-led legal services division is designed to standardise, systemise, scale and optimise legal workflows.

Its services include compliance, contracts management, legal analytics litigation and investigations.

The Connected Services division is engaged in providing products and business services that enhance and complement its legal offerings.

Its services include claims management and adjusting, corporate governance and compliance, costs, forensic, learning, regulatory consulting and risk.

A massive global marketplace

This £362m capitalised group has determined ambitions to grow considerably and become the leader in its services.
It is a very big marketplace in which it trades, worth $750bn globally and growing at the annual rate of 5%, while the alternative legal services market is growing three times faster.

The equity split

There are 325.35m shares in issue.

Larger holders include The DWF Group EBT (9.18%), Miton Asset Management (6.11%), Cartesian Capital Group (5.48%), Standard Life Investments (4.77%), Sand Grove Capital Management (2.97%), Andrew Leaitherland (2.41%), Premier Fund Managers (1.56%) and GAM International Management (0.86%).

Latest results

On Thursday 9 December, the group announced its interim results for the six months to end October. It reported a 3.8% increase in revenues to £203.5m, while adjusted pre-tax profits were an impressive 39.6% better at £18.7m.

Splitting the revenue down saw a 2% growth in legal advisory, a 14% growth in Connected Services and growth of 8% in Mindcrest.

The gross margin was 1.7% improved at 51.3%, with each of those divisions showing revenue, profit and margin betterment.

The current period trading is indicating further demand and strength.

It is now apparent that the group’s client proposition of providing integrated legal and business services is gaining traction and leading to a strong pipeline of instructions.

Broker’s View

Analysts Mike Allen and Rachel Birkett at the group’s brokers Zeus Capital suggest that the operational transformation of this group is now showing meaningful progress against its targets.

For the year to end April 2022 they estimate revenues growing from £338.1m to £364m, while adjusted pre-tax profits could increase from £34.2m to £41.1m, worth 9.9p (7.4p) in earnings per share, covering a rise in dividend from 4.5p to 5.9p per share.

The analysts see £388.8m in 2023 revenues, then £410m in 2024. In those years they forecast profits of £46.6m then £51.7m, earnings of 11.2p then 11.9p and dividend of 7.8p then 8.4p respectively.

Noting that DWF is trading on a big discount to the average 18.7 times 2022 earnings of its peers, Zeus considers that there is a 50% medium-term upside for its shares.

My View

I really like the way that this group is shaping up, it has lofty ambitions and the in-built ability to achieve its aims in due course.

Its high-yielding shares, now 111p, have been an excellent performer since my profile at the start of June last year.

That they have risen nearly 66% since then does not put me off from setting a new Target Price of 140p for 2022.

(Profile 01.06.2020 @ 67p set a Target Price of 100p*)

(Asterisks * denote that the Target Price has been achieved subsequent to previous profile publication)