Australian Firm Slater & Gordon Now Valued at $A278 Million

This report in today’s Sydney Morning Herald is well worth a read if you are looking at how to run a listed law firm..

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Legal lefties operate by new law of increasing returns

http://www.smh.com.au/business/legal-lefties-operate-by-new-law-of-increasing-returns-20101026-172br.html

WHEN Slater & Gordon listed in 2007 the shares raced to $1.98, presenting investors with a near doubling of their money.

The thinking was that here was a hot-growth stock that offered punters an entree to a boutique law business; a left-leaning firm with 5 to 10 per cent of the personal-injuries market.

But while there has been earnings growth – 41 per cent, 13 per cent and 16 per cent a year respectively – it wasn’t enough for some hard taskmasters in small-cap land.

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A potted history of the scrip shows it fell back to $1.25 after listing, rallied to $1.83, and declined to $1.38 earlier this year.

Now at $1.82, the stock is knocking on the door of its all-time high following two acquisitions that will increase Slater’s personal-injuries market share to 20 per cent, and boost current year earnings.

There was the acquisition of Queensland-based Trilby Misso in June for $57 million, and yesterday managing director Andrew Grech announced the purchase of Sydney’s Keddies for $35 million.

Grech – who has presided over a string of law firm acquisitions since listing – has no doubt the model is working.

”What we’ve been able to do is to integrate these firms and continue to drive net fees and earnings. Overall, we’re pleased with how the strategy has been executed, particularly in the personal-injuries space.”

He thinks there is ”enormous growth potential in this business”. He’s relaxed about the company’s earnings record.

”I would much rather have a business that’s growing consistently with a clear focus on its strategy over time than doing very sexy, once-off numbers that you can never repeat.”

It used to be the case – as a film clip shown at the annual meeting yesterday reminded shareholders – that you didn’t have to be a Marxist, a leftie or a communist to get a job at the firm, but it certainly helped.

But things have changed just a little. The principals have become multimillionaires; former director Peter Gordon – now a consultant – recently sold $2.5 million of stock.

And Grech, who believes that the ALP is the progressive side of politics – ”excuse me for wearing my politics on my sleeve” – says he’s sure there are now people in the firm who vote Liberal and ”God bless ’em”.

Meanwhile, investors will be hoping that the firm manages to arrest falling returns on invested capital and declining tax-paid earnings to sales numbers.

At $1.82, Slater is valued at $278 million – 14 times historical earnings, or about 11 times possible current-year earnings.