# Gateley (Holdings) Plc FY 17 results and initiation

- Link: https://www.directorstalkinterviews.com/gateley-holdings-plc-fy-17-results-initiation/412735876
- Published: 2017-09-21T12:01:37+01:00
- Author: Giles Arbor

**[⌊Hardman & Co Report Report Downloads⌉⌊Hardman & Co Report Report Downloads⌉[Gateley (Holdings)
Plc** (LON:GTLY) is a broad-based UK legal services firm. It floated on AIM in mid-
2015. It is a leader in the UK mid market, having grown strongly over the last decade
through one of the most difficult ever trading environments for professional services
businesses. With 14% compound growth in revenues at stable profit margins over that
period, its strategy is to continue this organic growth, fuelled by lateral hires
and new office openings, complemented by selective bolt-on acquisitions in adjacent
business service lines. The reasoning behind the IPO has been amply justified.

**Current Trading:** The company reported final results to April, 2017 on 11th July,
which showed growth in revenue of over 15% (13% organic) and in operating profit
of 18%. It has made two acquisitions since flotation, both complementary existing
service lines generating cross-sales potential and additional channels to market.

**Forecasts:**  We forecast growth in revenue of 7% this year and 8% in the following
year, leading to earnings per share growth of 9%, then 8%. We believe these forecasts
are conservative and have not factored in any new office openings or further acquisitions.

**Valuation:** It is in the nature of a new sector that the stock market will often
ascribe a conservative valuation, and as market participants become more familiar
with the industry, the valuation has potential to grow. The current p/e is 16.1x,
falling to 14.9x next year, on very conservative numbers.

**Risks:**  The company has broad exposure to the UK economy, primarily to SMEs.
Earnings were resilient during the global financial crisis, and we would expect 
an economic slowdown to result in a drift in working capital more than an earnings
slump. The main risk is that this is a people business, although management have
highlighted incentivisation as a key goal and believe the Plc structure best addresses
their long term plan of encouraging early and widespread equity ownership.

**Investment summary:** Gateley (Holdings) plc is a high quality professional services
company with significant growth potential as it has a small share of a growing and
consolidating market. It has a good track record, a strong management team, and 
considerable growth potential. It offers a dividend yield of over 4%.

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