30th May 2023 18:53
(Alliance News) - DWF Group PLC on Tuesday said it has delivered consistent and strong revenue growth in the year ended April 30, and was "highly confident" in its medium-term guidance as a result.
The Manchester-based legal business said it expects to report net revenue of around GBP380 million in financial 2023. This would reflect growth of more than 8% from the GBP350.2 million achieved in financial 2022.
Analysts at Berenberg noted that Tuesday's update from DWF implies a "significant" acceleration in revenue growth through the year and, consequently, the broker said it has rebased its own revenue forecast by 1% to 2% from its prior GBP385 million estimate.
"Given the strength of this update in a period of relative macroeconomic weakness, we believe the resilience of DWF and its growth strategy will become increasingly clear to the market," Berenberg said.
"The statement also reiterates the company's medium-term guidance, which alongside an improving growth rate through the year, provides strong confidence in results over the coming years. Given this, a current valuation of just 5.0 times price-to-earnings ratio with a double-digit dividend yield for financial 2024 appears obviously attractive value, and we expect that the shares will offer material re-rating potential over the coming periods."
Berenberg currently rates DWF at 'buy' with a price target of 160 pence. The stock closed 3.2% higher at 64.00p on Tuesday in London. Over the past 12 months, the stock is down 38%.
Analysts at Shore Capital dubbed DWF a "compelling" 'buy'.
"Overall, the group is demonstrating progress towards its medium-term target announced at its financial 2021 results," the broker said.
"Revenue growth is expected to improve from the prior year, demonstrating DWF's resilient revenue streams. We calculate a financial 2021 to financial 2023 [compound annual growth rate] of 6.4% which suggests the medium-term revenue CAGR targets of 6-7% is likely to be met."
Though Shore noted there hasn't been any "granular" information on profitability, it said the update suggests cost controls are being implemented "effectively" which, it contended, should improve the company's cost-to-income ratio towards its 38% target from the 47.3% reported in financial 2022.
In contrast, Liberum retained a 'hold' rating on DWF, with a price target of 80p.
"DWF trades on a financial 2023 price-to-earnings ratio of 5.5 times, versus the professional services sector at 11.6 times," Liberum analyst James Allen explained.
"While DWF's strategy remains differentiated, restructuring initiatives have consistently improved margins and management is broadly delivering on a [profit & loss] basis, net debt estimates continue to creep up and cash generation is the worst in our professional services peer group."
Allen also noted that there was no mention of profit in DWF's statement on Tuesday and said that although "given cost pressures are mentioned and lock-up days have increased" which he said indicates a higher net interest cost, Liberum expects pretax profit is "a little light".
"We therefore expect pretax profit to come in slightly below our estimate at GBP44 million (vs Liberum GBP46.5 million) and below consensus of GBP47.8 million," he said.
In financial 2022, pretax profit totalled GBP22.3 million, swung from a loss of GBP30.6 million the year prior. Adjusted pretax profit in that year totalled GBP41.4 million.
By Heather Rydings, Alliance News senior economics reporter
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