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In Roman times, scientists, philosophers and writers believed that courage, exuberance or even hysteria could be related to the presence of “animal spirits” in human beings.
Fast forward 2,500 years and modern 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 beginning to re-emerge.
Negotiators: Unlike the 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 planning deals, both on the stock market and privately.
Group of Knights on the target list Knights is benefiting hugely from this shift. Led by chief executive David Beech, Knights was the first commercial law firm to convert to a corporate status when regulation changed in 2012.
Most practices operate as partnerships, where lawyers own and manage their businesses and deal with clients.
At Knights Group, attorneys focus on the law and let Beech and his team run the business.
This approach is quite different from traditional legal practices, but it is gaining momentum.
When Beech moved to Knights, there were 70 lawyers. Today, there are almost 1,100 and the business is growing both organically and through acquisitions.
The group also differentiates itself from its peers in other ways. Most of the leading 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 cities and towns, from Carlisle in the north to Portsmouth in the south.
The company is often the only one of any size in these locations and business is brisk. Corporate work accounts for around two-thirds of the group’s revenue, including mergers and acquisitions, property sales, employee affairs and tax advice.
An optimistic spirit is driving activity across all regions, with financiers reporting they are busier than ever and Knights customers in the mood for growth.
With Rachel Reeves threatening to beat up anyone with a few pennies to spare, businesses are also eager to plan big moves before they are hit with huge tax bills.
Beech is also optimistic about other areas of his business. The residential property market has been depressed for a couple of years. In recent months, property transfer work has shot up by 30 percent.
Focus: Knights is based in Chester, has no presence in the capital and focuses on regional towns and cities.
Knights also has thousands of wealthy clients, from large landowners to self-employed entrepreneurs with thriving private companies. Many are concerned about the new government’s plans and are looking to Beech and his team for help.
Knights Group joined Aim in 2018 at £1.45, following six years of growth and a quadrupling of revenues to £35m.
The group continued to thrive after the IPO but struggled in 2022 when economic conditions worsened and a major acquisition in Leeds went wrong.
Beech issued a profit warning and the shares fell from more than £4 to 66p in just a few months. The stock has since recovered but, at £1.25, is still below its IPO price. That is set to change.
Results to April this year showed a 6 per cent rise in revenue to £150m and a 29 per cent increase in profits to £14.8m, with a 9 per cent rise in the dividend to 4.4p.
Beech aims to double sales to £300m over the next five years, delivering profits and dividends.
Some investors are concerned that Knights’ growth is largely driven by acquisitions. Beech is out to prove them wrong.
Organic growth has averaged 10 per cent a year for many years and it expects to make similar gains in the future, complemented by sensible deals including the recent acquisition of Worcester-based Thursfields, a firm founded in 1878.
Beech, a straight-talking Midlands man from Stoke-on-Trent, has managed the Knights for more than a decade.
That’s a long time in today’s market, but Beech is determined to stay at the helm. “I’m not going to let some other bastard 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 the City’s forecasts are encouraging.
Brokers expect revenues of almost £170m in the current year, rising to £183m in 2026. Strong profit growth is also forecast, along with dividends of 4.8p for the year to April 2025 and 5.3p the following year.
MIDAS VERDICT: Knights Group has been through some tough times, but the company is back on track and the outlook is bright. At £1.25, the shares should rise, and dividends are rising too. Buy.
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