ULS Technology, Keystone Law and Collusion on IPO Pricing

Yesterday I attended an interim results presentation by ULS Technology (ULS). They have been listed on AIM for a couple of years and have grown both from organic increases in revenue and from acquisitions which is often a good formula. They operate in the legal conveyancing and estate agency market where volumes have not been great of late – it seems house prices have made it difficult for folks to move plus changes to stamp duty and buy-to-let taxes have deterred transactions. But they seem to be prospering regardless.

I first became interested in this company, and acquired some shares, when I noticed that Geoff Wicks have become a director. He has also just been made Chairman. Geoff used to be CEO of Group NBT which was one of my most successful technology investments and he did a great job of sorting out and then growing a failing dotcom business.

I did perhaps amuse the CEO of ULS, Ben Thompson, by noting that I don’t really like companies with unmemorable three letter acronym names (ULS, NBT for example). Investors can never recall what they do. ULS used to be called United Legal Services but needed a new “umbrella” name so came up quickly with ULS. Should have used a branding consultancy I suggest. Unless you are a really big company, like IBM or BAE, establishing name recognition for such “brands” is hard work.

So ULS it is for the present, but understanding what they do and how they make money is not necessarily easy. Attending the seminar helped with understanding that. In summary, ULS aim to make house moving easier by making conveyancing easier, quicker and lower costs. They use web technology to support that. So if you are looking for a conveyancing solicitor they can help, and they have partnerships with other businesses in the house buying space such as mortgage brokers/lenders so that their service is offered when required. For example, Lloyds Bank is one of their largest partners. In addition they have a specialist comparison web site for when you are looking for an estate agent (includes price and performance comparisons).

For the conveyancing service they get paid by solicitors to which customers are referred, who pay 5 days after the legal completion with a fixed fee (does not vary with house price cost). The customer saves on paperwork such as filling out multiple forms. The customer introducers are many small mortgage brokers, large financial networks and others such as Moneysupermarket.com and Home Owners Alliance. They do seem to have some competitors but these are generally smaller in size and have nowhere near the same size of “panel” containing solicitors to which referrals are sent. The market generally for conveyancing services is still very old fashioned and dominated by “cottage industry” firms. ULS have only 2.6% of the conveyancing market but have a desire to become much larger. It certainly seems a market that is ripe for technical disruption.

Estateagent4me.com is their estate agency comparison site where you can search for agents and select on the basis of: the Fees they will charge; Average time to sell a property like yours; How close they might get to achieving an asking price; and How successful they are at selling similar homes. I asked whether they had received any legal threats from Purplebricks who apparently were not happy at all about some reviews that were published on their service, but it seems they have not.

The company expects to grow by: 1) Organic growth; 2) M&A (already done some of those); 3) Future new product development. They are not rushing to move outside the UK although there might be opportunities there. In essence they seem to be aiming for a conservative, profitable growth strategy which is often the kind of company I like, rather than betting the farm on a very rapid expansion as per Purplebricks. Return on capital is what matters, not empire building at huge cost.

There were a number of good questions from the audience of private investors (organised by Walbrook) but I’ll only cover one that arose. The accounts show a very low “current ratio” because the current liabilities, particularly the “Trade and other payables” figure is high at £7.8 million. This does include two earn-out payments due from past acquisitions of £5.2 million and taking those out makes the ratio look more reasonable. It would seem they do have a credit facility lined up to cover those payments, but this will add to the gearing of the company of course, at least temporarily even if operating cash flow is positive as it appears to be. They may wish to raise more equity also I suspect, particularly if other acquisitions are contemplated.

Also yesterday a legal firm named Keystone Law Group Plc listed on AIM. I think this is only the second of two commercial legal firms to list (Gateley Holdings, GTLY, was the first). Keystone promptly went to a premium over the listing price. I’ll have to read the IPO Prospectus which is available on the company’s web site under AIM Rule 26. Keystone are different to many law firms in that most of their solicitors are effectively freelances and they only get paid when the client pays (yes they are part of the new “gig” economy). The prospectus should make interesting reading as I have been a client of theirs in a libel action I have been pursuing of late which you should hear more about very soon. But buying shares in new IPOs is generally something to avoid.

Meanwhile the Financial Conduct Authority (FCA) FCA has accused fund managements of colluding on IPOs. The regulator alleges Artemis, Newton, River and Mercantile and Hargreave Hale shared the prices they were willing to pay for shares. This story should run and run as it attacks the informal nature of conversations in the City of London about deals under consideration. But colluding on pricing is a breach of competition law as anyone in business should surely know.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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