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Summary
- As per the industry experts, British Prime minister Boris Johnson would likely ask the businesses to bring back the workers. The government earlier announced incentives to employers who bring back people to work.
- Knights Group completed the acquisition of two law firms in April 2020; Shulmans LLP and ASB Law LLP.
- Knights Group suspended the final dividend for FY20.
- INCE Group suspended the interim dividend payment for FY20
Given the above market conditions, we will review two support services stocks - Knights Group Holding PLC (LON:KGH) and INCE Group PLC (LON:INCE). Let's review their financial and operational updates to understand the stocks better.
Knights Group Holding PLC (LON:KGH) – Board suspended the final dividend payment for FY20
Knights Group Holdings plc is a UK based legal and professional services Company. The Company is involved in Real Estate, Dispute Resolution, Corporate and Private Client services. The Company serves over 10,000 clients with an average matter close to £3,000.
FY2020 Trading Update (ended 30 April 2020) as reported on 21 May 2020
The Company guided a full year FY20 revenue to be close to £74.0 million, which is expected to be up by 40 percent year on year whereas the organic revenue growth is close to 10 per cent. The revenue in FY19 was £52.7 million. The underlying profit before tax (PBT) is expected to increase by 44 percent to £13.5 million; the underlying PBT was £9.4 million in FY19. The underlying PBT margin is expected to improve significantly in the second half of FY20 as compared to the first-half FY20. Based on the numbers, the performance was robust in the second half of FY20. However, the business was impacted in April 2020 due to the lockdown, with short term disruption to transact for the clients.
Balance sheet Headroom
The Company's working capital management was strong based on day-to-day cash collection. The Company had a net debt of £15.9 million that reflected net debt to underlying EBITDA of less than 1.0x. Knights has an undrawn credit facility of £24.0 million for working capital purposes in addition to that the Company extended their revolving credit facility to £40.0 million until June 2023 with HSBC UK and Allied Irish Bank. To preserve cash, the board suspended the final dividend payment for FY20; however, an interim dividend of 1.10 pence per share was paid.
Acquisition of Law firms
The Company acquired Leeds based independent law firm Shulmans and Crawley & Maidstone based full-service commercial law firm ASB. Shulmans was acquired for £20.1 million whereas ASB for £8.5 million. The acquisition was completed through the issue of ordinary shares to raise £20.0 million and the use of credit facility. A cash payment of £14.9 million was made for acquisitions of Shulmans and ASB, whereas the remaining amount was used to repay debt. Shulmans generated yearly revenue of £17.6 million for the period ended 31 March 2019, and ASB generated yearly revenue of £12.2 million for the period ended 30 April 2019.
Acquisition Details of Shulmans and ASB
(Source: Company Website)
Share Price Performance
6-Month Chart as on July-10-2020, after the market closed (Source: EODHD/Others, Thomson Reuters)
Knights Group Holding PLC's shares closed trading GBX 405.00 per share (as on 10 July 2020). Stock 52-week High and Low were GBX 499.10 and GBX 274.00, respectively. The Company had a market capitalization of £332.45 million.
Business Outlook
The recent acquisitions by the Company have integrated well with the existing business and are expected to perform well in the future. The addition of Shulmans and ASB is expected to improve the Company earnings by high single-digit in FY21. The Company has a diverse client base from different sectors and geography that bodes well with the business model. The Company plans to progress through organic and acquisitive growth.
INCE Group PLC (LON:INCE) – Board suspended previously announced interim dividend for FY20
Ince Group PLC, erstwhile Gordon Dadds Group PLC, is a UK based legal services company. Ince Group is also involved in accounting services, financial services, consulting and pensions advice to clients. The Company has integrated 14 firms on the platform where some of the key brands include, Alen-Buckley Solicitors, CW Energy LLP, eLegal Technology Solutions and Hanover Pensions and The Hanover Trustee Company.
Trading Update as reported on 26 March 2020
Ince's international business got impacted due to the pandemic, starting with Greater China. The second half of the financial year generally provides the majority of the profits, but in the current situation, the performance remained very uncertain. The Company has cut down capital expenditure and non-discretionary expenses to preserve cash. The board decided to suspend the interim dividend payment that was due on 16 April 2020 whereas the final dividend payment would remain under review.
Recent Events
- On 26 May 2020, the Company appointed Simon Oakes as a Director. He was appointed as the Chief Financial Officer on 2 April 2020.
- On 3 February 2020, the Company issued 4,547,515 shares to raise £2.0 million of which over £1.0 million of shares were applied in the Staff Offer.
- On 15 January 2020, the Company issued 26,666,667 shares for gross proceeds of £12.0 million. The shares were issued at 45 pence per share.
H1 FY20 results (ended 30 September 2019) as reported on 28 November 2019
The Company generated revenue of £45.3 million up from £20.1 million in H1 FY19; the five acquisitions underpinned the growth. The adjusted profit before tax was £4.0 million. The basic diluted earnings were 5.1 pence per share. As on 30 September 2020, the Company had net debt of £10.4 million.
Financial Summary H1 FY20
(Source: Company Website)
Share Price Performance
6-Month Chart as on July-10-2020, after the market close (Source: EODHD/Others, Thomson Reuters)
Ince Group PLC PLC's shares closed traded at GBX 29.00 per share (as on 10 July 2020). Stock 52-week High and Low were GBX 154.89 and GBX 16.00, respectively. The Company had a market capitalization of £19.88 million.
Business Outlook
Given the uncertain conditions worldwide, the collection of revenue could be impacted, and the Company is sceptical about delivering performance as per the market expectations. The Company refrained from providing any guidance about future trading performance. The Group plans to deliver growth through new lateral hires as the conditions improve; the acquired businesses have integrated well with the existing business. Ince previously expected the annual revenue to be close to £100 million; however, it would reveal the actual performance when the Company releases the annual result in July.
