Gateley (Holdings) – ready for the fight back

Law firm Gately is well placed to weather the crisis and come out at the other end all guns blazing, writes Mark Watson-Mitchell. 

Way back in June 2015 this company was the first full service commercial law firm to float in the UK.

At that time the group, Gateley (Holdings) (LON:GTLY), placed 31,589,937 shares at 95p each, with the company putting an extra £5m into its coffers while vending shareholders benefited from the balance £25m.

The group’s origins can be traced back to the 19^th century when the commercial law firm of Stephen Gateley & Sons was established in Birmingham.

Since then, the company has grown significantly and going public boosted its ability to attract new partners and businesses into its fold.

Today it is a legal and professional service group, with 700 fee-generating staff out of its total of 1,038+ people.

It has offices in Belfast, Birmingham, Cambridge, Guildford, Leeds, Leicester, London, Manchester, Nottingham, Reading and Dubai.

The full-service legal offering is given by its five business groups: banking and financial services, business services, corporate, employment and pensions, and finally, property.

It supports in excess of 5,700 active clients in the UK and beyond, ranging from private individuals up to FTSE100 companies.

Its clients are many but include: the BBC, Sainsburys, HS2, Samsung, McCarthy & Stone, Jaguar Land Rover, Saint Gobain, Balfour Beatty, Toyota, Danone, BAE Systems, Taylor Wimpey, de Montfort University,  NCP, and Transport for London.

Mid-February this year saw the company hold a secondary placing on behalf of some of its Partners and Employees holdings – 5.5m shares at 200p each. The demand was strong from new and existing holders to increase positions. They touched 222p thereafter.

However, since then Covid-19 has intervened and the shares fell back to a 115p low at the end of March.

A subsequent correction in the price has seen them edge back up to the current 155p.

There are some 117.6m shares in issue. Large holders include Liontrust Investment Partners (9.68%), Unicorn Asset Management (5.46%), Miton Asset Management (4.12%), Premier Fund Managers (3.03%), and Hargreaves Lansdown Stockbrokers (1.45%).

Since 2015 the group has grown its revenues substantially from £60.87m to £103.47m to end-April 2019.

In that period pre-tax profits have grown from £9.84m to £15.95m.

The group was doing well in the 10 months to end-February this year but then Covid-19 impacted and immediate measures were taken. Sensibly the interim dividend was cancelled, due to be paid end-March. Staff were encouraged to work at home, with several parts of the business actually advising clients on how to cope with and handle the impact on their own businesses.

Guidance for the year to end-April was withdrawn, which is why the shares fell away so dramatically.

But the subsequent climb back to the current 155p is, hopefully, a prelude to another statement from the company later this month.

This company has a firm and prudently managed base and appears capable of coping with any stress that Covid19 causes and, furthermore, is astute enough to gain longer-term growth out of any adversity.

My view is to take a few now and then look hard at the end-April results and decide whether to take more out.

I set a tentative one-year target price of 195p.