Investors are always on the lookout for new businesses like restaurants and retail stores that can grow across the country, multiplying earnings many times along the way. Sometimes they are companies that you may recognise the name, but not use on a regular basis, so you might not think of them as part of an expanding business chain.
On such company is Slater & Gordon (ASX:SGH), the law firm that operates under the brands Slater & Gordon, Trilby Misso Lawyers and Conveyancing Works in Australia, and in the UK it has Russell Jones & Walker and Claims Direct.
Brand exposure and company footprint
You may know of several law firms in your area, but would assume that most are operated by a single private owner. This company has 70 offices nationwide in Australia and operates across 12 locations in the UK, so they have wide exposure and area coverage.
Personally speaking, it has offices in my local area, so I myself knew of the three Australian brands, yet didn't think they were all connected. That's a shame because since early 2012 its share price has gone from about $1.50 to $4.43.
This is yet another example of how you can find attractive investing opportunities right around where you live. I always tell my readers, when they find a new business or store, the first question they should ask is: "Is it a publicly listed stockholding company?" I missed this one by a little, but there still may be time. Are its offices in your community, or have you seen the ads?
Growth and industry market share
Since listing in 2007, its revenues have risen from $62 million to $296 million, almost five times in six years. Likewise, NPAT has gone up about four times during the same period to $41.9 million.
What prospects are there in Australia? The legal services industry is highly fragmented and according to IBISWorld even the top law firms only control 2% or 3% of the total market, with 86% held by single private owners. Slater & Gordon is estimated to have about 1.5% market share, so with ambitious marketing, growth and acquisition plans, it can expand.
The law firms which hold larger market shares are all privately held, and another ASX-listed law firm is Shine Corporate Ltd (ASX:SHJ) which listed in May 2013.
Business expansion
In 2012, Slater and Gordon made its first acquisition in the UK and in 2013 the UK segment contributed $70.5 million in revenue, with a 20.5% EBITDA margin. For FY2014, new acquisitions are expected to add $47.6 million in revenue on top of that.
Together with the domestic and international growth, its group revenue target is $368 million, or a 24% increase. It plans to capitalise on the bigger name recognition for its brands after successfully using TV ads to raise brand awareness to 75% in marketing survey results.
Foolish takeaway
Other companies like the veterinary service provider Greencross Limited (ASX:GXL), or the funeral home service company InvoCare Limited (ASX:IVC) are steadily growing across Australia, possibly unnoticed for the most part because of the nature of their businesses, yet it is specialised and in demand nonetheless.
Slater & Gordon have been pushing the brand because it knows that most people may not use its services on a regular basis, but it wants to be first and foremost in the minds of potential clients when they suddenly need legal assistance. If it can succeed at promoting its brands, then further growth can come. In addition, investors should watch how acquisitions both here and in the UK are performing to see the total picture.
