DWF Group (LON:DWF) hosted a Capital Markets Day yesterday, focused on two of its growth engines; its Managed Services proposition and its International growth strategy. We believe Managed Services is a clear differentiator of DWF’s proposition that has been largely overlooked since IPO. The acquisition of Mindcrest acts to meaningfully accelerate its Managed Services offer, with yesterday’s presentation highlighting the significant revenue opportunity that exists within this space. In turn, the Group continues to execute its international strategy with deals in both Poland and Spain complete, and new markets of interest identified.
- Significant Managed Services opportunity: The Managed Services platform aims to deliver day-to-day, process driven law in an efficient way though harnessing both technology and lower cost delivery models including the Group’s newly acquired offshore capabilities in Pune, India. DWF’s ability to offer its managed services in conjunction with complex law advice is a genuine market differentiator and was central to its success in winning the BT contract, that none of the other 25 companies that tendered were able to match. The long term contracted nature of managed services relationships produces sticky, recurring revenue and helps to cement relationships with large corporate clients, exemplified by BT’s five-year contract. Significant cross selling opportunities exist alongside internal cost synergies. We believe Managed Services has the potential to represent up to half of Group revenue over the long term, as increasing amounts of volume, process- driven work is identified, standardised and automated. A foothold in India also gives the Group insight into the regions quickly evolving legal tech market, a key focus for the Group in driving innovation and disruption in the legal services market.
- International growth: Since listing DWF has established a presence in Poland and more recently Spain, through the acquisition of RCD; both markets identified as targets at IPO. The Group’s tried and tested model for international expansion is client led, with new target markets identified for the next phase of its global growth, including Portugal and Canada. Its association model allows it to establish close working relationships with international partners, best exemplified in its US association with WSHB, a highly innovative legal business which we believe would be a highly complementary acquisition for the Group in the future.
- Valuation: Trading on FY20 P/E of 12.5x falling to 8.7x in FY21, with a prospective yield of 5.6% DWF offers multiple drivers of growth through international diversification and market disruption. In addition DWF Group has significant latent capacity which we believe it can translate into meaningful fee income growth which should drive medium term margin expansion.
