This past year has been a very active one in acquisitions for Slater & Gordon Limited (ASX: SGH), the law firm has a network of about 70 offices in Australia and 18 in the UK. Being on a steady growth path means it has increased company revenue every year since it listed in on the ASX in 2007.
Since then its net profit has astounded shareholders by rising six times as it patiently added more law practices to its group. This is one stock story that investors will definitely want to know. Here's why I believe the company has a great growth profile and quite a number of years to expand from here.
Expansion in the UK
In FY 2014, the company purchased seven UK businesses, which has increased its market share in personal injury law to 5%. It now holds the number one or two market share position in most consumer law practice areas.
According to the company, the acquisitions have added about 72 million pounds ($132 million) to its UK revenues. This is part of the reason why Slater & Gordon's group profits rose 47% in FY 2014.
The company now wants to change the different business names over to Slater & Gordon to drive brand awareness.
Bigger Australian network
The company holds a 25% share of the personal injury law market in Australia with such brands as Slater & Gordon, Trilby Misso Lawyers and Conveyancing Works. It estimates it has the largest family law and conveyancing practices in Australia.
Still, there is a lot of room left to grow into. Its Australian acquisitions in 2014 will see two more businesses, a consumer law firm in Queensland and a specialist personal injuries practice in Victoria, added to its growing network.
Outlook for FY 2015
The company reaffirmed is August guidance for FY 2015, stating it expects its Australian business to generate about $270 million in revenue and about $230 million from the UK. If correct, that $500 million will be about 19.5% higher than in FY 2014. Its EBITDA margin should be in the low 20s.
Analysts forecast an earnings increase of around 13% annually over the next two years. Along with a dividend yield of 1.5% fully franked, that growth estimate matches up reasonably with its 18 price-earnings ratio. For the potential earnings, current share price levels are attractive.
Just like any business chain in its early expansion phase, it has developed a successful business model that can now be transplanted and replicated into new areas. Investors can ride this growth story for a number of years and look forward to good share price gains.
