Back in Roman times, scientists, philosophers and writers believed that courage, exuberance or even hysteria could be linked to the presence of ‘animal spirits’ in human beings.
Fast forward 2,500 years and modern-day economists link animal spirits to confidence, hope, fear and pessimism in financial markets.
Bearish fear and pessimism have dominated sentiment for several years. Now it seems that bullish optimism is starting to make a comeback.
Dealmakers: Unlike big-city lawyers in Suits, pictured, Knights Group focuses on the regions
The past two months have seen a surge in activity, with companies announcing or plotting deals, both on the stock market and privately.
Aim-listed Knights Group is benefiting handsomely from this shift. Led by chief executive David Beech, Knights was the first commercial law firm to become a company when regulation changed in 2012.
Most practices operate as partnerships, where lawyers own their businesses, manage them and deal with clients.
At Knights Group, lawyers focus on the law, leaving Beech and his team to run the company.
This approach is quite different from traditional law practices, but it is gathering momentum.
When Beech moved into Knights, there were 70 lawyers. Today, there are almost 1,100, with the business growing both organically and through acquisition.
The group differs from its peers in other ways, too. Most major law firms are based in London, followed by Manchester, Birmingham and Leeds.
However, Knights is based in Chester, has no presence in the capital and focuses on regional towns and cities, from Carlisle in the North to Portsmouth in the South.
The firm tends to be the only one of any size in these places and business is brisk. Corporate work accounts for around two-thirds of group revenues, including mergers and acquisitions, buying and selling property, employee affairs and tax advice.
Bullish spirits are fuelling activity across the regions, financiers report that they are busier than ever and Knights’ clients are in the mood for growth.
With Rachel Reeves threatening to pummel anyone with a few spare pennies, companies are also keen to plot any major moves before being penalised with huge tax bills.
Beech is upbeat about other parts of his business too. Residential property has been depressed for a couple of years. In recent months, conveyancing work has soared by around 30 per cent.
Focus: , Knights is based in Chester, has no presence in the capital and focuses on regional towns and cities
Knights has thousands of wealthy clients as well, from major landowners to self-made entrepreneurs with prosperous private firms. Many are worried about the new Government’s plans and looking to Beech and his team for help.
Knights Group joined Aim in 2018 at £1.45, after six years of growth and a quadrupling of revenues to £35million.
The group continued to prosper after flotation but hit problems in 2022 when economic conditions soured and a large acquisition in Leeds went awry.
Beech issued a profits warning and the shares slumped from more than £4 to 66p in just a few months. The stock has recovered since then but, at £1.25, is still below its flotation price. That should change.
Results to April of this year showed a 6 per cent rise in revenues to £150million and a 29 per cent profits increase to £14.8 million, with a 9 per cent hike in the dividend to 4.4p.
Beech intends to double sales to £300 million in the next five years, bringing profits and dividends along for the ride.
Some investors worry that Knights’ growth stems primarily from acquisitions. Beech intends to prove them wrong.
Organic growth averaged 10 per cent per annum for many years and he hopes to deliver similar gains in future, supplemented by judicious deals, including the recent acquisition of Worcester-based Thursfields, a firm founded in 1878.
A plain-speaking Midlands-man from Stoke-on-Trent, Beech has steered Knights for more than a decade.
That is a long time in today’s market, but Beech is determined to remain at the helm. ‘I’m not going to let some other bugger take all the credit for the next few years,’ he says.
With a 22 per cent stake in the business, he is certainly motivated to strive for success, and City forecasts are encouraging.
Brokers expect revenues of nearly £170million in the current year, rising to £183million in 2026. Strong profits growth is forecast too, alongside dividends of 4.8p for the year to April 2025 and 5.3p the year after.
MIDAS VERDICT: Knights Group has been through tough times but the firm is back on track and prospects are bright. At £1.25, the shares should move higher – and dividends are rising too. Buy.
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