MIDAS STOCK TIPS: Knights lawyers resign and pocket profit

Already in Roman times, scientists, philosophers and writers believed that courage, enthusiasm and even hysteria could be related to the presence of “animal spirits” in humans.

Fast forward 2,500 years and modern economists associate animal instinct with confidence, hope, fear and pessimism in financial markets.

Bearish fear and pessimism have dominated sentiment for several years. Now it seems that bullish optimism is starting to return.

The past two months have seen a surge in activity as companies announce or plan deals, both publicly and privately.

Aim-listed Knights Group is benefiting greatly from the change. Knights, led by chief executive David Beech, was the first commercial law firm to become a company when the rules changed in 2012.

Most law firms operate as partnerships, where lawyers own and manage their firms and deal with clients.

At Knights Group, lawyers focus on the law, leaving Beech and his team to manage the firm.

This approach differs significantly from traditional legal practice, but is becoming increasingly popular.

When Beech moved into Knights, there were 70 lawyers. Today, there are almost 1,100, and the firm is growing both organically and through acquisition.

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, the Knights organisation is based in Chester, has no presence in the capital and focuses on regional cities, from Carlisle in the north to Portsmouth in the south.

The firm is usually the only firm of any size in these locations, and business is brisk. Corporate work accounts for about two-thirds of the group’s revenue, including mergers and acquisitions, buying and selling real estate, employment affairs and tax advice.

Positive sentiment is driving activity across all regions, with financiers reporting they are busier than ever and Knights’ clients poised for growth.

As Rachel Reeves threatens to slap the wool over anyone with a spare penny, businesses are also looking to plan any big moves before they are hit with a huge tax bill.

Beech is optimistic about other parts of his business. Residential real estate has been depressed for several years. In recent months, conveyancing work has increased by about 30 percent.

Knights also has thousands of high-net-worth clients, from large landowners to self-made entrepreneurs with successful private businesses. Many are concerned about the new government’s plans and have turned to Beech and his team for help.

Knights Group joined Aim in 2018 at a price of £1.45, after six years of growth and a quadrupling of revenues to £35m.

The group continued to thrive after the floatation but ran into trouble in 2022 as economic conditions worsened and a major takeover in Leeds fell through.

Beech issued a profit warning and shares fell from over £4 to 66p in just a few months. The shares have since rebounded but, at £1.25, they are still below their share price. That should change.

Results for April this year showed a 6 per cent rise in revenue to £150m and a 29 per cent rise in profits to £14.8m, with a 9 per cent increase in the dividend to 4.4p.

Beech aims to double sales to £300m over the next five years, while also increasing profits and dividends.

Some investors worry that Knights’ growth is mostly due to acquisitions. Beech aims to prove them wrong.

Organic growth has averaged 10 per cent per year for many years and the owner is looking to deliver similar levels of profit in the future, supported by considered deals including the recent acquisition of Worcester-based Thursfields, founded in 1878.

Beech, a no-nonsense Midlands man from Stoke-on-Trent, has been in charge of the Knights for more than a decade.

That’s a long time these days, but Beech is determined to stay at the helm. “I won’t let some other dud take all the glory in the next few years,” he says.

With a 22 per cent stake in the business, he is undoubtedly motivated to succeed and the City’s prospects are encouraging.

Brokers are expecting revenues of almost £170m this year, rising to £183m in 2026. Strong profit growth is also predicted, with dividends of 4.8p for the year to April 2025 and 5.3p the following year.

MIDAS VERDICT: Knights Group has had a tough time but the company is getting back on track and the outlook is promising. At £1.25 the shares should go higher – and dividends are rising too. Buy.