Entrepreneurial lawyers Slater & Gordon Limited (ASX: SGH) posted another strong full-year result with net profit of $61.1 million on $418.5 million of revenue. Net profit growth of 47.2% grew marginally faster than revenues at 40%, as the group maintained profit margins despite a busy year of acquisitions and integration.
A final dividend of 5 cents per share was declared, up 29.9% on the prior year and taking the full year payout to 8 cents per share on a yield of 1.54%.
Slater & Gordon's primary fee-earning activities are in the provision of personal injury services and personal legal services like conveyancing, family law, wills and probate. It also has a commercially-focused division involving professional negligence litigation, class actions, and criminal defence work.
For law firms like Slater & Gordon the key overhead is staff costs, including both fee-earning staff (the lawyers) and support staff. The firm has a reputation for keeping a tight control over these costs and getting the most out of its fee-earning and support staff. The first slide in the company's results presentation references the aim to improve "operational effectiveness" and the keen focus on this is what it allows it to drive shareholder returns via revenue growth.
Promisingly its existing businesses in Australia and the UK are showing growth, while the onboarding of some fast-tracked UK acquisitions has also proceeded well. Moreover, the UK personal injury and general legal market is large, remains fragmented, and looks a natural fit for an entrepreneurial management team with an aggressive growth strategy.
The firm completed five acquisitions in the UK in the past year, with plenty of room to grow in Australia too, as evidenced by today's announcement of two new proposed acquisitions of small legal firms in Victoria and Queensland.
The group announced a positive outlook for FY 2015 with a revenue target of $500 million on an EBITDA margin of 23%-24%. All the evidence points towards another strong year of earnings growth and selling for $5.20 Slater & Gordon trades on 17 times 2014's earnings per share of 30.3 cents. As mentioned previously, in my opinion given the valuation and outlook Slater & Gordon remains a strong buy.
Shares were up 6% in morning trade, while shares of Domino's Pizza Enterprises Ltd (ASX: DMP) are up 8% after it announced its full year results today. Both these stocks were identified as likely to produce upside surprises this earnings season in this article. Don't be surprised if the remaining three follow suit.
