Kip McGrath's Buybacks Keep Pace With A Minor Downgrade

Fund managers say the tuition provider's cash generation is understated by reported earnings even after a small second-half miss

30 Jun 2026 · 4 min read

A modest earnings downgrade tested investor patience with Kip McGrath Education Centres in June 2026. DMX Asset Management said the stock fell 10 per cent after the tuition provider flagged that increased lesson prices had not fully offset lower lesson numbers, resulting in a small downgrade to its second-half result. The manager said a number of minor variables had gone modestly against the company, but believed the market overreacted initially, and was pleased to see the buyback programme continue alongside meaningful director share purchases following the update. It also noted a pleasing stabilisation in the number of tuition centres, after several periods of falling centre counts.

We believe the market overreacted initially to the downgrade, and were pleased to see the company continue its buyback programme, in addition to meaningful director purchases following the update.

— DMX Asset Management, Monthly Report, June 2026

A cash-generative business trading well below its earnings power

The case for looking past the downgrade rests on how understated Kip McGrath's reported earnings are relative to its cash generation. Merewether Capital said in February 2026 that the company reported flat revenue of $15.2 million and net profit up 15 per cent to $1.5 million, but that historical depreciation and amortisation running well above the business's actual cash reinvestment needs means reported earnings understate true cash generation. On that basis, the manager calculated cash earnings of $2.5 million for the half, putting the company on track for around $6 million for the full year given a seasonally stronger second half, against an enterprise value of only $26 million, a valuation it called very cheap.

DMX Asset Management pointed to the company's buyback activity as evidence management shares that view, noting in March 2026 that Kip McGrath had repurchased around 2 per cent of itself over six weeks, a pattern the manager said reflected rational capital allocation, recognising the market is undervaluing the business and that meaningful purchases below intrinsic value enhance returns for remaining shareholders.

Where the position began

HD Capital Partners first built a material position in November 2025, describing Kip McGrath as a global franchise tutoring business operating since 1976, led by Chairman Damian Banks, who had previously chaired Konekt through a 2,593 per cent share price increase between 2013 and 2019 before its acquisition by APM. The manager said it acquired its shares at just 3 times EV/Cash EBIT, a starting valuation that framed much of the subsequent case for holding through short-term volatility.

What managers are watching next

With tuition centre numbers now stabilising after a period of declines and cash earnings tracking toward $6 million for the full year, the near-term question for managers is whether the lesson pricing versus volume trade-off that triggered the June downgrade proves temporary, and whether continued buybacks and director purchases keep closing the gap between the company's $26 million enterprise value and its underlying cash generation.