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Why Slater & Gordon Limited deserves a place in your portfolio

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Slater & Gordon Limited (ASX: SGH) is to signal its UK presence in a big way with the recent leasing of a 7-storey office building in Manchester. The premises will house in excess of 700 staff and is the firm’s largest office anywhere in the world. In pretty much a first the ground floor will include an area ‘where members of the local community can just drop in, talk to a lawyer over a coffee and access legal information and resources in an approachable and relaxing environment.’ The firm also has offices in London and Liverpool.

With the UK market five times the size of Australia, Slater & Gordon is well on the way to achieving similar revenues and margins to those in Australia within the next three years. Although they brought us SpecSavers the Brits aren’t quite as familiar with dancing barristers and solicitors, and the active marketing campaign is making waves.

At present the three leading consumer law firms in the UK are Slater & Gordon, Irwin Mitchell and Minster Law – in addition the giant U.S. firm Jacoby & Meyer is making tentative moves into the market. However Slater & Gordon has now built substantial scale and acquisitions which are consolidating nicely. With the platform set for further strong growth, S&G is no longer knocking on the door; and now has 5%+ of the UK market.

In Australia Slater & Gordon has 25% of the personal injury market and continues to develop two other divisions – Personal Legal Services (conveyancing, family law, wills, probate etc) and Business & Specialised Litigation (commercial, professional negligence litigation, class actions and criminal defence work). Steady growth is expected from these divisions.

However 2015 onwards will demonstrate the benefits of the move into the UK. With the bedding down of acquisitions, 2015 earnings per share are estimated to increase to 34c and dividends to 10c – placing Slater & Gordon ($4.88) on forward ratios of 14.35 times earnings and a franked dividend of 2%. With a low PEG ratio (price earnings ratio ÷ projected growth rate in earnings) and solid prospects, Slater & Gordon is well placed to reward its investors.

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Motley Fool contributor Peter Andersen owns shares in Slater & Gordon

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