Excellent full-year results

Gateley reported another strong set of results, again beating market expectations, underlining its consistency and predictable performance. A broad-based, legal and professional services group, Gateley is a leader in serving the UK mid-market. It continues to deliver on its pre-IPO plan, growing revenue, profit, breadth of service offering and geographical footprint since flotation. Strong cash generation and organic revenue growth were highlights, with 10.7% of revenues coming from acquisitions. Gateley made two strategic acquisitions this year, for shares and cash, which enhances its long-term excellent organic growth performance. A recent strategic placing improved liquidity and further expanded its institutional shareholder list.

• Strategy: Gateley has proved itself a consistent performer in this new and exciting sector, with solid organic growth, boosted by complementary legal and professional services acquisitions. A high-growth core business with strong cash generation, is led by a seasoned management team with a track record of delivery, pre and post-IPO.
• Results: Results were strong, with EPS of 11.8p, up 7%, vs. our forecast of 11.3p, and accompanied by a generous 14.3% hike in the dividend. The outlook comment was extremely positive – “the Group is well positioned to make even greater progress in the current financial year” – this after a 20% revenue growth year!
• Valuation: The valuation, based on our forecasts, is shown in the table below, and the stock is clearly modestly rated, given the track record, attractive dividend yield and resilience. Particularly attractive are the inherently strong financial characteristics, with good cash generation and a limited investment requirement.
• Risks: This is a people business. People can leave. Gateley’s record, since IPO, in lateral hires and limited losses is impressive, with retirees handing over to the next generation and securing clients. Any new CEO is also a risk, but the change is being closely managed, planned a long way out, and strategy will be unchanged.
• Investment summary: Gateley is a quality player in a new and exciting space, which is increasingly attracting investor attention. It is a high-quality legal and professional services group with significant growth potential, an excellent delivery track record, a strong management team, and a strategy to diversify further in complementary professional services. Its valuation is far from demanding, in our view.