Shares and shares we like

How strong is the financial management in your firm? Find out in The Lawyer UK 100 Annual Report 2006 – the most comprehensive financial analysis of the legal sector, and out today (4 September). As you may imagine, a benchmarking exercise of this magnitude takes months of research. It’s a big read.

The findings show a profession at the top of its game. What’s more, the possibility of accessing external capital through flotation has helped concentrate everyone’s minds. This year we’re adding a twist of pepper to this soup of stats; we’re saying outright which firms we would invest in.

We looked at a combination of factors: financial performance over the past few years, the quality of the management team, market positioning in core business areas and sustainable growth. Note: we’re not rating the intellectual talent in the law firms. Neither are we rating the happiness of the workforce. This is a money thing.

We recommend buying shares in Linklaters, now challenging Slaughter and May for the highest-paid partners in the City, and buying Freshfields also, whose net profit of £433m makes it the UK’s most profitable firm despite its current restructuring.

As for Clifford Chance and Allen & Overy (A&O): hold. Clifford Chance has benefited from cross-border M&A and its profit has bounced back after David Childs’ £40m cost-trimming, but it will need weight on the top line this year. A&O’s malaise is not terminal, but its unconvincing international strategy has let it lag behind in key global markets.

Investors ought to pile into Ashurst; prospects are strong there. Top tips for a bull market punt are Travers Smith and Dickson Minto, but Alistair Dickson’s own pessimism about the medium-term performance of private equity rather tempers our enthusiasm for poorly hedged outfits.

Solid picks include Field Fisher, Forsters, Halliwells, Mills & Reeve, Mishcon de Reya, Pannone, Pinsent Masons, Shoosmiths, Speechly Bircham, Trowers, Walker Morris and Watson Burton.

And which firms get sell recommendations? There are a lot fewer of them. Hammonds, obviously, but other firms with limited growth prospects include Norton Rose, Salans, Hill Dickinson, Charles Russell and an alarming number of regional practices, particularly Cobbetts.

Share-tipping is by its nature inexact and impressionistic, and this is simply a bit of fun. And yes, you can check whether we’re right this time next year.