Shares in patent and trademark attorney Murgitroyd (MUR:AIM) tumble 1.8% to 548p as solid full-year results are tempered by earnings forecast downgrades.

Operating in the relatively stable legal services market, Murgitroyd delivered a 6% gain in revenue to £42.2 million and 3% improvement in operating profit to £4.3 million in the year to 31 May 2016.

Investors are focusing instead on a research note by Murgitroyd’s house broker N+1 Singer which reduced earnings estimates by 3% in both of its next two financial years.

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‘Murgitroyd Group has delivered another year of steady revenue and profit growth, in line with our expectations,’ writes N+1 Singer analyst James Tetley.

‘Market and regional trends are consistent with those reported in prior periods and the USA is again the key growth driver following recent targeted investments in that region.

‘European markets remain somewhat challenging but it is too early to judge the potential consequences of the Brexit vote, save for a reasonable currency tailwind at current exchange rates.

‘Considering it is too early to bake this in, we prudently trim our 2017 and 2018 forecasts (EPS minus 3% in both years), assuming a continuation in the recent growth trajectory.’

Tetley is pencilling in a revenue gain of 6% in the year to 31 May 2017 to £44.7 million and 4% in the following year to £46.5 million.

Pre-tax profit is estimated at £4.5 million and £4.7 million, respectively. That gives adjusted EPS forecasts of 38.7p and 40.5p in 2017 and 2018, as compared to 35p in results published today.

Performance in the year to 31 May 2016 was driven by strong demand in the US offset weaker markets in the EU and UK, according to chairman Ian Murgitroyd.

‘Notwithstanding the uncertainty resulting from the EU referendum vote, including but not limited to the consequential volatility seen in foreign exchange markets, and the continuing, broader, macro-economic challenges to be addressed across Europe, we remain encouraged by our ability to win new business, particularly in the USA, and are committed to the delivery of sustainable higher earnings as well as increased revenue over the longer term,’ said Murgitroyd.

Weaker sterling should benefit the top and bottom line at Murgitroyd, which does around half of its business abroad.

A $2.4 million (£1.8 million) acquisition of Dallas-headquartered MDB Capital is unlikely to have much impact on earnings in the year ahead, adds chairman Murgitroyd.

The deal should add to revenue though its impact on earnings is expected to be ‘neutral’ in the first year of ownership. MDB was bought to increase Murgitroyd’s share of US companies buying patent services for the EU market.

Issue Date: 12 Sep 2016