ShoreCap upgrades Knights Group, says valuation discount 'not warranted'

(Sharecast News) - Analysts at ShoreCap upgraded their recommendation for legal and professional services business Knights Group from 'hold' to 'buy'. In particular, they noted how the company's latest full-year results had revealed several tailwinds, including "strong" interest earnings from client monies, a softer recruitment market, inflation-beating rate rises and a better acquisition policy.

As a result, their outer year estimates were raised by 4%, which in turn also saw their 'fair value' rise from 105.0p to 115.0p.

"Knights is currently trading on an FY25F PER of 3.6x, an EV/EBITDA multiple of 2.4x and a dividend yield of 5.8%," they said in a research note sent to clients.

"Although there are risks relating to the acquisition policy, we are slowly warming to the strategy as long as it remains selective and manageable."

They also believed that a return to organic growth was "likely" in the 2024 financial year, adding that the shares' current discount was not warranted.

In their view, the shares should be trading on a price-to-earnings multiple of 5.2, instead of the current 3.6.