ASX:KME
Kip McGrath Education Centres Limited
Investment Summary
The fund managers believe that Kip McGrath Education Centres Limited (KME) is in a strong position moving forward. In their opinion, the recent trading updates showcase **revenue growth of 5.8%** to **$10.1m** and **EBITDA nearly doubling to $1.9m**. Most notably, management's significant reduction in capital expenditure to **~$500k** from **$2.1m** last year is a positive development, enabling KME to generate **over $1m in free cashflow**. The fund managers anticipate that KME could produce **$3-4m in free cash** this year, aligning well with its **$30m market capitalisation**. Additionally, while the core tutoring business performed strongly with a **13% revenue increase**, the poor performance of the **Tutorfly acquisition** significantly impacted results. Nevertheless, KME managed to produce a **$600k profit** compared to a loss last year, with **free cashflow of $1.7m** allowing for debt repayment and dividend reinstatement. This overall outlook strengthens their view on KME's potential for investors.
Commentary From The Managers
Mereweather Capital
28 Feb 2025
$0.48
- Mereweather Capital observes strong performance in core tutoring franchise with revenue up 13%.
- Poor acquisition of Tutorfly in the US heavily impacted results, with revenue down nearly 80% to $300k.
- Tutorfly's revenue decline linked to pauses in Government funded tutoring programs under the Trump administration.
- Rollout of new corporate centres paused to focus on consolidating existing network.
- Technology investment normalised with the launch of the new KipLearn platform.
- Despite headline revenue growth of only 2%, KME achieved a $600k profit compared to a loss last year.
- Less cash was invested in technology, contributing to free cash flow of $1.7m.
- KME utilized free cashflow to pay off existing debt and re-instate a dividend.
Mereweather Capital
30 Nov 2024
$0.50
- Kip McGrath Education Centres (KME) reported a revenue increase of 5.8% to $10.1m in the first four months of the financial year.
- EBITDA nearly doubled to $1.9m.
- Management has significantly reduced capital expenditure to approximately $500k this year, down from $2.1m last year.
- Most capital expenditure consists of capitalised development costs for software programs.
- KME has generated over $1m in free cash flow from its operating business at the start of the year.
- Given the seasonal weighting to the second half, KME is positioned to potentially generate $3-4m in free cash this year.
- This free cash flow represents a reasonable level compared to their current $30m market capitalisation.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.