Overview
Knights Group Holdings plc is a UK-based holding company providing diversified legal and professional services across the nation. With a robust portfolio of legal offerings spanning various sectors, Knights Group has demonstrated consistent growth and resilience in its market presence.
Financial Performance:
The company's recent
interim results showcased impressive financial performance, marked by a significant 68% increase in statutory pre-tax profits to £6.9 million. This surge in profitability was primarily driven by a 6% revenue growth, supported by both organic expansion and strategic acquisitions. Notably, Knights reported a 3.3% organic growth in the first half of the fiscal year, signaling a return to organic growth after a period of consolidation.
Moreover, efforts to optimise operational efficiency were evident, with a noteworthy 8% reduction in non-underlying costs to £2.9 million. This reduction in one-off costs underscores the company's commitment to enhancing its bottom line and streamlining its operations.
Strategic Initiatives:
Knights Group's management has emphasised the importance of organic growth, which has historically lagged behind due to the focus on mergers and acquisitions. However, recent performance indicates a renewed focus on organic expansion, supported by increased staff retention and margin improvements.
Furthermore, the company's strategic vision includes further expansion into new regions and sectors, leveraging its strong financial position and borrowing facilities. While short-term acquisition plans are minimal, the company remains poised for strategic acquisitions in the future, with ample borrowing capacity and a well-structured debt facility in place.
Financial Position and Outlook:
Despite concerns regarding high borrowings, Knights Group maintains a comfortable interest coverage ratio, providing a cushion against fluctuations in interest rates. With net debt expected to decrease to around £30 million by April 2024, the company is well-positioned to manage its debt obligations while pursuing growth opportunities.
At its current share price of 126.5p, we think Knights Group Holdings is undervalued, trading at less than six times prospective earnings with a dividend yield of 3.6%. This coupled with its strong financial performance in the last few years and plans to increase growth, suggests there could be significant upside in the long term.
Conclusion:
Knights Group Holdings plc presents a compelling investment case, supported by its strong financial performance, strategic focus on organic growth, and prudent financial management. While challenges such as high borrowings warrant attention, the company's solid market position and growth prospects make it an attractive investment opportunity. We will be adding it to the CC portfolio on Monday.
