Jefferies starts DWF Group at 'buy', sees 40% upside

Analysts at Jefferies have initiated coverage of DWF Group at 'buy' with a 165p target price, pointing to a slew of potential positives for the international legal services firm - subject to management's ability to execute successfully.

The German broker described the company as a "market leading" firm with a "unique proposition".

"Our due diligence with customers and peers suggests that DWF commands a strong position in the insurance sector. In addition they are differentiated in their service offering and have been successful in offsetting industry price pressure by material growth with new and existing clients."

That, they said, would allow it to grow organic revenues at a double-digit pace, driving "strong" gross margin improvement of 295 basis points between fiscal years 2019 and 2022, thanks to embedded growth within current investments, such that as top-line growth grew into the current cost base earnings per share would grow at a compound annual rate of 35%.

Jefferies also anticipated good cost control and dubbed the company's 70% pay-out ratio "appealing".

They were also hopeful that the company would be able to lower the number of lock up days, made up work-in-progress plus debtors, from 200 in fiscal year 2019 to below the peer average of 191 by 2022, in turn freeing up cash and cutting the firm's net debt to EBITDA to 0.6 times by fiscal year 2020 which in turn would open the door to M&A.