MIDAS SHARE TIPS: Knights Lawyers Dropped Partnership, Reaped Profits
As early as Roman times, scientists, philosophers and writers believed that courage, exuberance and even hysteria were related to the presence of ‘animal spirits’ in man.
2,500 years later, we see modern-day economists linking animal instincts to trust, hope, fear and pessimism in the financial markets.
Pessimism and fear of bears have dominated sentiment for years, but now it seems that optimism is returning.
Dealmakers: Unlike big-city lawyers in Suits, pictured, Knights Group focuses on the regions
The past two months have seen an increase in activity, with companies announcing or planning deals, both on the stock exchange and privately.
Knight group on target list is benefiting greatly from this shift. Led by CEO David Beech, Knights was the first commercial law firm to become a corporation when the regulatory environment changed in 2012.
Most practices operate as partnerships, with the lawyers owning and managing their own firm and maintaining contact with clients.
At Knights Group, lawyers focus on the law, while Beech and his team focus on business operations.
This approach differs considerably from traditional legal practice, but is gaining popularity.
When Beech moved to Knights, there were 70 lawyers. Today, there are almost 1,100, with the firm growing both organically and through acquisitions.
The group also differs from its peers in other ways. Most of the large law firms are based in London, followed by Manchester, Birmingham and Leeds.
However, Knights is based in Chester, has no office in the capital and focuses on towns and cities across the region, from Carlisle in the north to Portsmouth in the south.
The company is usually the only one of any size in these places and business is good. Corporate work accounts for about two-thirds of the group’s turnover, including mergers and acquisitions, buying and selling real estate, human resources and tax advice.
The positive mood is driving increased activity across the regions, with financiers reporting they are busier than ever and Knights’ clients in the mood for growth.
While Rachel Reeves is out to get everyone with a few bucks, corporations are eager to make big moves before they are punished with huge tax bills.
Beech is also optimistic about other parts of his business. Residential real estate has been in a slump for a few years. In recent months, conveyancing work has increased by about 30 percent.
Focus: Knights is based in Chester, has no presence in the capital and focuses on regional towns and villages
Knights also has thousands of wealthy clients, from large landowners to self-made entrepreneurs with successful private businesses. Many are concerned about the new government’s plans and are looking to Beech and his team for help.
Knights Group joined Aim in 2018 for £1.45m, after six years of growth and a fourfold increase in turnover to £35m.
The group continued to thrive after its IPO, but ran into trouble in 2022 when economic conditions deteriorated and a major takeover in Leeds fell through.
Beech issued a profit warning and the shares fell from over £4 to 66p in just a few months. The stock has since recovered but is still below its IPO price at £1.25. That should change.
Results to April this year showed a 6 per cent rise in turnover to £150m and a 29 per cent increase in profits to £14.8m, with a 9 per cent increase in dividend to 4.4p.
Beech aims to double turnover to £300m over the next five years, generating both profits and dividends.
Some investors worry that Knights’ growth has come largely from acquisitions. Beech wants to prove them wrong.
For years, organic growth has averaged 10 percent a year and he hopes to achieve similar gains in the future, supplemented by sensible deals, including the recent acquisition of Worcester-based Thursfields, a company founded in 1878.
Beech is a straight-talking man from Stoke-on-Trent who has been at the helm of Knights for over a decade.
That’s a long time in today’s market, but Beech is determined to stay at the helm. “I’m not going to let some other loser take all the credit for the next few years,” he says.
With a 22 percent stake in the company, he is certainly motivated to strive for success, and the city’s forecasts are encouraging.
Brokers expect turnover of almost £170m in the current year, rising to £183m in 2026. Strong earnings growth is also forecast, along with dividends of 4.8p for the year to April 2025 and 5.3p the year after that.
MIDAS VERDICT: Knights Group has fallen on hard times, but the company is back on track and the outlook is good. At £1.25, the shares should rise – and dividends are rising too. Buy.
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