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THE TIPSTER

There are reasons to be cheerful for law firm DWF

The Sunday Times

Last week marked a milestone for DWF, the only law firm listed on London’s main market. It finally returned to the price it listed at in 2019.

While investors at flotation might still be feeling sore after the months of under performance, there are now reasons to be hopeful.

The recovery began in May 2020 when Sir Nigel Knowles, former co-chairman of legal giant DLA Piper, moved from chairman to chief executive. Under his watch, the company reorganised into three divisions: one offering legal advice, another offering adjacent services such as forensic accounting, and its tech arm Mindcrest, which specialises in services such as compliance and analytics.

Knowles has described himself as a “business-builder rather than a lawyer”, and has declared that the old partnership model of law firms is dead. By listing on the London Stock Exchange, DWF was able to hand shares to more junior staff to allow them to enjoy business growth through dividends and share options. Its listing meant that more than 2,000 employees could become shareholders in the business.

The restructure appears to be working. In DWF’s most recent accounts, for the six months to the end of October, the company reported a 3.4 per cent rise in net revenue to £173.3 million compared to the same time a year earlier. It said revenue per partner had risen 9 per cent to £490,000, helping to secure a gross margin of 51.3 per cent, up from 49.6 per cent in 2021.

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The upturn at DWF comes as rival Mishcon de Reya prepares for its own listing. It too will move away from the traditional law firm model to be a broader professional services company and will invest in technology.

Part of the issue for big law firms is that pressure is building to cut fees for low-value legal work. They have also struggled to make long-term investments when the majority of profits are paid out each year to a firm’s partners — making a listing an attractive proposition.

DWF was founded in 1977 and up until its float had completed 14 acquisitions and opened 25 new offices.

Part of DWF’s business model is to use technology to reduce the costs of basic services that would traditionally be done by junior lawyers and admin staff. Clients expect computers to do more of the grunt work of eager graduates working over late nights and weekends.

The company’s adjusted pre-tax profits are forecast to reach £38 million this year. Liberum has put a 135p target on the stock. With shares closing on Friday at 125p, this firm has further to go. Buy.

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