A high-yielding AIM star that keeps breaking records

Fast-growing companies with attractive dividend yields on AIM have become rare beasts, but Gateley is a great example. The first UK law firm to list on the stockmarket two years ago, shares in the Birmingham-headquartered company have jumped from 95p to an all-time high of 173p.

The latest leg up followed a trading update Thursday reporting yet another strong year. Revenue for the year to 30 April will be up by at least 15% year-on-year at no less than £77 million, while adjusted cash profit (before share-based payments) of £14.7 million is up 14%.

After a 3.5% rally on the news, investors savvy enough to buy in at flotation have an 82% capital gain and even new investors can still lock in a dividend yield north of 4%.

A dividend policy agreed in February 2016 will see the company pay up to 70% of post-tax profits out to shareholders on a twice-yearly basis.

Broker Arden Partners was impressed with a strong top-line performance in the second half. "Deal flow has clearly held up well into the post-Brexit UK landscape with no sustained deferment of activity in core areas such as financial and property markets," it said.

The acquisitions of Capitus in April 2016 and Hamer in September are estimated to have contributed £1.9 million to the top line, according to Arden analyst Ben Thefaut.

The company plans to seek out more purchases in the future, so acquisitions director Nick Smith, who has advised large companies including AT&T on M&A deals while at Japanese bank Nomura, will be an important cog in an experienced team.

Chief executive Mike Ward has been at Gateley for 30 years and led the firm through its IPO. Finance director Neil Smith joined in 2008.

Further staff hires and the establishment of its Reading office, which takes its tally to 11, including one in Dubai, "shows management's confidence in the business", according to Cantor Fitzgerald analyst Keith Baird. The outlook is favourable, he adds, with scope for organic growth of around 8% longer term.

The chart is impressive. Shares opened on 8 June 2015 at just shy of 110p, which was already 16% above the placing price, but progress was slow until renewed optimism after the Brexit vote.

Gateley's full-year results revealed double-digit growth in most metrics. Impressive interim numbers in December gave another shot in the arm.

So, what's the outlook for Gateley?

Only institutional investors like major backers Schroders and Miton could buy shares at IPO, but the free float has risen to 34% after a share placing by internal shareholders last autumn.

Analysts retain 'buy' recommendations, although Cantor Fitzgerald's price target of 175p, despite being raised by a fifth today, implies fair value.

However, Arden reckons there's room to grow in an opportunity-rich corporate landscape. And there's the generous dividend, which is covered 1.5 times by earnings.

CEO Ward says it's the depth of Gateley's client relationships that helps the firm to deliver a huge return on equity. It also helped at IPO, with Gateley's clients pumping in £3 million.

Year-to-date gains of a third put the firm on a forecast 2018 price/earnings ratio of almost 16 times, but return on equity is well over 20%. Gateley remains a class act.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.