Fund Manager Summary
The fund managers believe that Kip McGrath Education Centres Limited presents a promising outlook, particularly given its recent performance metrics. In their opinion, the company’s revenue increased by 5.8% to $10.1m in the first four months of the financial year, while EBITDA nearly doubled to $1.9m. Notably, management’s decision to significantly reduce capital expenditure to ~$500k from $2.1m last year enhances operational efficiency. This reduction, mainly in software development costs, has allowed KME to generate over $1m in free cash flow at the start of the year. With a seasonal boost expected in the second half, the fund managers anticipate KME can produce $3-4m in free cash this year, making it an attractive proposition against a $30m market capitalisation.
Source: Trading View
Commentary From The Managers
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DMX Asset Management
30 June 2025
$0.57
Summary
- Kip McGrath (ASX:KME) anticipates an approximately 20% increase in EBITDA for the year.
- DMX Asset Management has expressed past disappointment regarding Management missteps and a lack of focus on profitability.
- The appointment of Damian Banks as new chair marks the first board change in seven years.
- It is encouraging to see the board's decision to shut down loss-making US operations.
- The appointment of an experienced operational CEO aims to refocus the business in both Australia and the US.
- DMX Asset Management continues to hold because of these strategic changes and the potential for improved performance.
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Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Managers
DMX Asset Management
30 June 2025
$0.57
- Kip McGrath (ASX:KME) anticipates an approximately 20% increase in EBITDA for the year.
- DMX Asset Management has expressed past disappointment regarding Management missteps and a lack of focus on profitability.
- The appointment of Damian Banks as new chair marks the first board change in seven years.
- It is encouraging to see the board's decision to shut down loss-making US operations.
- The appointment of an experienced operational CEO aims to refocus the business in both Australia and the US.
- DMX Asset Management continues to hold because of these strategic changes and the potential for improved performance.
Summary
Mereweather Capital
30 June 2025
$0.57
- Mereweather Capital notes that KME has decided to wind up operations in the US by the end of June due to significant revenue decline.
- US revenue dropped from $3.4m to $0.4m, with EBITDA losses growing from $0.4m to $2m in FY25, making the exit a fiscally sound decision.
- Excluding US operations, KME expects a 7% revenue increase to $30.8m and a 20% EBITDA increase to $8.4m for the financial year.
- This reinforces Mereweather Capital's investment thesis regarding the ongoing strength of KME’s core franchising business.
- KME's previous elevated investments in technology and poor capital allocation in the US had masked this strength.
- Full statutory accounts are awaited to assess cash costs post-$8.4m EBITDA, but KME is likely to report over $5m in cash profitability.
- Currently, KME trades at a market cap of just $32m, indicating it is undervalued at 6x operating earnings.
- Mereweather Capital highlights the significant discounts to fair value in the micro/small cap segment of the ASX.
- The rapid closing of valuation gaps following positive updates, as seen with KME and MXO, is noteworthy.
- With reporting season approaching, Mereweather Capital is optimistic about potential catalysts for similar discounts in the portfolio.
Summary
DMX Asset Management
31 Mar 2025
$0.45
- Kip McGrath Education Centres Limited (KME) reported a significantly improved first half result with EBITDA of $3.4m, an increase of 46%.
- KME has reinstated its dividend.
- The result could have been even stronger if not for US funding delays post-election affecting its US business.
- A notable feature of KME's result was its cash generation, with CAPEX reduced from $2.7m to $0.9m.
- DMX Asset Management anticipates a much stronger second half, projecting FY25 EBITDA of $8m+ and free cash flow of $4m+ for the year.
- KME’s enterprise value (EV) is approximately $24m.
Summary
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.
Summary
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.
Summary
DMX Asset Management
31 Oct 2024
$0.42
- DMX Asset Management has increased their shareholding in Kip McGrath Education Centres (ASX:KME).
- There is encouragement from further board rejuvenation.
- The KME board has demonstrated leadership by reducing director fees.
- This fee reduction aims to reset the company’s cost base.
- DMX Asset Management continues to hold due to these positive developments.
Summary
Oracle Advisory Group
31 Mar 2024
$0.30
- Oracle Advisory Group continues to monitor Kip McGrath Education Centres Limited after a disappointing half yearly result.
- The company faced challenges across all three segments of its business.
- Despite achieving revenue growth, Kip McGrath reported a small net loss.
- A significant $500,000 contract loss in the Middle East impacted overall performance.
- Poor performance from recently acquired corporate centres further detracted from profitability.
- The inability to convert revenue growth into profits post-COVID raises concerns.
- Oracle Advisory Group's position in Kip McGrath is currently under review.
Summary
DMX Asset Management
28 Feb 2024
$0.31
- Kip McGrath Education Centres Limited (KME) reported poor first half results, with disappointing negative NPAT due to cost blowouts and poor execution.
- DMX Asset Management expresses bitter dissatisfaction with KME's performance and the recent share price.
- There is a strong need for accountability and change within the company.
- KME has experienced no board renewal in the past 7 years, leading to a frustrated shareholder base and significant overhang.
- Prior to the results, DMX Asset Management engaged with the KME Board regarding the necessity for change, and these discussions are ongoing.
- While there are no guarantees, there is hope that these poor results may be a catalyst for positive changes moving forward.
Summary
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
ANALYST INSIGHT
Equity Research Analyst
"It seems Kip McGrath Education Centres is quietly positioning itself for a potential cash windfall, with a notable reduction in capital expenditure and a promising start to the year. Investors might want to keep a close eye on this one as free cash flow could surprise many."
Last Updated: 30 Jun 2025
Query The Data
Frequently Asked Questions
Who is investing in Kip McGrath Education Centres Limited (ASX:KME)?
Fund managers including Mereweather Capital, DMX Asset Management and Oracle Advisory Group have invested in Kip McGrath Education Centres Limited (ASX:KME).
Why do fund managers invest in Kip McGrath Education Centres Limited?
Fund managers are investing in Kip McGrath Education Centres Limited due to strong financial performance, highlighted by a 5.8% revenue increase and nearly doubled EBITDA. The significant reduction in capital expenditure, down to $500k from $2.1m, has resulted in over $1m in free cash flow, positioning the company to potentially generate $3-4m in free cash for the year. This financial stability is favorable against its $30m market capitalization.
What happened to Kip McGrath Education Centres Limited (ASX:KME)?
There have been no recent updates from fund managers regarding Kip McGrath Education Centres Limited although fund managers including Mereweather Capital, DMX Asset Management and Oracle Advisory Group have previously commented.