# KME - Kip McGrath



## hueyt (20 February 2007)

In keeping with the theme that Education will be one of the key industries of the future I came across a stock called KME and would like to get more opinions on this.

Background
- Started in Oz as a kindy to 16 tutoring business
- The business is a franchise model. I.e. the McDonalds of tutoring businesses
- Expanded to UK and now makes more $$in UK than it does here

Growth
It recently embarked on two new products. (1) English classes for non-english speakers (2) Pre-university courses. And is now expanding into the South East asia.

I quite like the story and have entered into a small position. The price has given away a little somewhat however.

Do you guys think this stock has the legs to run further?


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## bumble_boo_bum (1 April 2007)

I liked the story and got in recently too with a small holding.  I hope you have hung on because IMO this stock is going to show good growth. Look at current depth - lots of buyers and not many sellers.   

I have done a bit of research and like the forecast EPS.  $26M cap and IMO this stock is undervalued, it had a few problems a while back when it started buying and running its own centres - management saw the error of their ways and sold them and back to what they do best.  Big plans unfolding to expand into a lot of new markets.  Stable and solid management and a great product.

-MD Presentation at AGM Oct 2006-
"We were very pleased that the company continued to increase its number of
franchises during the year from 584 to 648.
As our income is essentially an annuity income once a franchise is sold, the
more franchises we have the greater the company’s continuing income.

We have centres in 20 countries. Only Australia, New Zealand, Samoa and
Fiji are full or almost full. UK with 253 centres is half full.
In the USA we haven’t begun to fulfil the potential. In the countries where we
have a presence there is a market for 1000’s more centres. Then there are
another 100 countries where we could open centres.
This potential is the reason we spend a good part of our income in further
development of curriculum and expanding into these markets. Without this
expenditure to create growth for our future our profits could be much higher.
However, it is our belief that when the future has as much potential as our
future does, we should be investing to see it fulfilled."

Interested to hear what anyone else thinks.


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## omar12 (19 April 2007)

*KME*

Does anyone have a view on KME, specially after its recent announcement regarding the purchase IOTA a higher education provider.


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## galumay (12 June 2018)

Been a holder for a while now, jumped up nicely on profit update. Its a growth sector and there are a couple of really good businesses in the space, KME just seemed the best value at the time.


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## galumay (17 August 2018)

A very positive AR released today, profit up 40% to $2m, mcap $28m. Gushing cash with over $5 million in the bank, trailing yield of 4.6%. The increase in profit with almost no growth in revenue is impressive! Almost no fixed assets or CapEx, very low debt, good cost control. A cash conversion machine! My range of IV is $1.20-$1.90. 

Market liked the results too, pushing KME up nearly 9%.


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## galumay (28 August 2019)

Deja vu for 2019, one of my higher conviction positions.


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## galumay (21 January 2020)

KME up nearly 20% in 2 days of trading this week! No news. Very little supply, yesterday there were no sellers at any price. Someone wants in and happy to pay up! Thankful I topped up my holding in the high 90c range.


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## Trav. (23 January 2020)

galumay said:


> Thankful I topped up my holding in the high 90c range.



That's a very nice profit, well done mate.


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## galumay (23 January 2020)

Thanks Trav. I started buying in 2017 at 39c, my average is 65c. Makes up for a few of the ones I got wrong!

I was talking to a mate yesterday and he has a client who bought a significant parcel when they were 4c and has never sold!


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## sptrawler (23 January 2020)

galumay said:


> Thanks Trav. I started buying in 2017 at 39c, my average is 65c. Makes up for a few of the ones I got wrong!
> 
> I was talking to a mate yesterday and he has a client who bought a significant parcel when they were 4c and has never sold!



That is a bit of an under the radar pick gulumay, but with the appalling state of our education system, a very clever pick. IMO well done mate.


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## galumay (23 January 2020)

Thanks mate, i do tend to look under the rocks where no one much else hangs around!


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## sptrawler (23 January 2020)

galumay said:


> Thanks mate, i do tend to look under the rocks where no one much else hangs around!



I've put them on my watchlist and will be picking some up if opportunity presents. I've seen how bad the education system is first hand, teaching my 9 year old grandson how to add up and subtract, before he goes into grade 4 in Feb.


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## galumay (23 January 2020)

Hopefully you get an opportunity, I think the election result was a strong positive for KME given its growing presence in the UK, I assume thats got a fair bit to do with the recent run up. Also talk of merger or takeover has been in the market. 

The next opportunity will possibly be after the ½ yearly, given how strongly its run up, anything other than spectacular results will probably be punished fairly hard.


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## sptrawler (25 February 2020)

galumay said:


> Hopefully you get an opportunity, I think the election result was a strong positive for KME given its growing presence in the UK, I assume thats got a fair bit to do with the recent run up. Also talk of merger or takeover has been in the market.
> 
> The next opportunity will possibly be after the ½ yearly, given how strongly its run up, anything other than spectacular results will probably be punished fairly hard.



You were spot on galumay, they were spanked, down 30%.
Revenue up 22%, earnings up 12%, profit down 8%.


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## galumay (29 February 2020)

Yep, looks to have created an opportunity to accumulate some more!


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## finicky (9 June 2020)

CV19 turns out to have accelerated the evolution of *KME* to cloud based online lessons. Most face to face students who resorted to online in the lockdown preferred the online version. Online is higher margin for Kip. Large market opening up from the majority of potential student clients who are too remote from a Kip tutor. $5.9m to be raised @ 90cps to accelerate growth in online business, most to be used for marketing and personnel hire.
Held


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## galumay (9 June 2020)

I was a bit annoyed to find retail SH's were excluded from the CR, but I guess with such a small raising they saw no need.


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## finicky (9 June 2020)

It's only a small amount. Sounds like they're in a rush and have lots of work on their plate. A shareholder entitlement of SPP is more expensive and time consuming. Normally I'd feel likewise.


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## finicky (30 June 2020)

*KME* @ 0.91 Monday close

Kip McGrath would be one that I think I'd be accumulating if it were not for the fear of the general bust ahead.

Two directors were buying on market very recently at almost 99c per share with the price closing at just 91c on Monday. The directors spent about $50k and $100k.

The price has been almost at the 90c placement price that raised $5.9m, announced June 6. Price back up so far today on neglible volume.

If you take the presentation that accompanied the cap raise as read, the new equity is to constructively fund extra staff and a marketing campaign for the cloud based Kip Onlne remote learning service. It's like the Kung Flu interruption has been a springboard for the online version of Kip lessons because it forced students to try it instead of face to face lessons and most of them liked it. Online lessons went from 10,000 over 5 years, as the platform was developed, to 20,000 in a single week during the advent of Covid-19.

The 'addressable' student market using Kip Online in U.K, N.Z, S.A and AUS is much much larger than face to face as 60% of students are remote from a K.M learning centre.

In the short term Kip won't shine because, while FY20 revenue is expected to be up on FY19, EBITDA was slightly lower at 30 April vs same period last year. But Kip's EPS and ROE have consecutively grown for the last 7 years and book value has been inching ahead too. ROE was 22.5% in FY19. Company has no long term debt.

Kip Mcgrath has engaged only 1% of the potentially enrollable students in AUS alone and across the four countries it is so far positioned in there are estimated to be 20 million reachable students.

Held

Weekly chart does look a bit dodgy imo


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## galumay (30 June 2020)

Its definitely a good business, @finicky - I also held off accumulating more under $1 as its already one of my biggest positions. Will probably regret it going forward as I suspect it will do very well.


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## finicky (30 June 2020)

I'm pretty convinced there'll be an opportunity to buy *any* stock a lot cheaper in the 12 months ahead @galumay. I rely on @DaveHcontrarian on twitter for conviction about that. Kip will be on my list to accumulate but cashing up is my objective over the next month or two now eofy has passed. Won't be selling any Kip though, only hold 10,000 shares. I get the impression from others that the franchising system is working for KME too - as well as the online tutoring


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## galumay (17 November 2020)

KME reported on their AGM today, no real news, no profit guidance due to covid, but Mr Market was in a cheerful mood anyway and pushed it up strongly, +7.4% to $1.45 to reclaim most of what it lost from March. Back to being one of my largest positions. My comments about failing to accumulate more have come home to roost!


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## galumay (19 January 2021)

KME up over 7% today on no news. Just being swept along in the rising tide I suspect.


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## divs4ever (25 December 2021)

Kip McGrath Education Centres Limited's (ASX:KME) Has Been On A Rise But Financial Prospects Look Weak: Is The Stock Overpriced?​








						Kip McGrath Education Centres Limited's (ASX:KME) Has Been On A Rise But Financial Prospects Look Weak: Is The Stock Overpriced?
					

Kip McGrath Education Centres (ASX:KME) has had a great run on the share market with its stock up by a significant 10...




					simplywall.st
				




 DYOR

 i do NOT hold this share  ( but have worked as a sub-contractor for them  about 20 years back )

  will probably spend some of the long weekend  deciding if to put this on my watch-list (  and calculate a buy price )

 have the last two years   created an opportunity for this business ( many school students have had their education badly disrupted ) ??


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## galumay (25 December 2021)

@divs4ever I have held for a while, I was talking about it to a friend on twitter who was topping up last week when it dropped below $1, i think its pretty good buying at that level. My range of IV is around $1.50. Most of the other metrics I look at are supportive of that view. Probably the weakest is ROIIC, its a bit below my normal hurdle.

I thought the Simply Wall street was typical of the sort of nonsense these mobs produce. Quite a few of their calculations were simplistic and varied from how I would assess them. 

Like a lot of your positions I have held them for long enough that my potential capital gains are enough to give me a significant cushion even if they dont execute as well as I expect. Meanwhile the divvies keep rolling in.

I hold a fairly substantial position, but would probably consider adding at below $1 when I have capital to deploy, at that price its probably one of my higher conviction holdings.

If you do a deeper dive I will be interested to hear your thoughts on the business.


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## divs4ever (25 December 2021)

it was quite a few years back   and don't know if management has changed much , but they were a fair and reasonable business to deal with ,

 if they had kept those ethics  ( they had back then ) , but mind you back then  they were a face-to-face educator  ( and franchise system )  that tech stuff  can work both ways 

 the long term risk is a shrinking aging population   , but possible short-term tail-wind    are school-children  needing remedial teaching  AND displaced workers  needing to up-skill 

Kip McGrath to Acquire Majority Stake in Tutorfly Kip 

McGrath Education Centres Ltd (ASX: KME) (Kip McGrath) is pleased to announce it has agreed to purchase a 70% stake in the US based business Tutorfly.com. (‘Tutorfly’). Tutorfly is an incubator tutoring business concentrating on the peer-to-peer section of the market, which achieved rapid growth during its initial start-up phase.
 The business has developed a scalable technology stack which demonstrated rapid growth in the 2020/21 US school year, increasing quickly from 1,300 to 5,500 active students, peaking at 3,200 hours of tutoring per month. Entering the US summer break the business was still delivering around 900 hours of tutoring per month. Kip McGrath will take a 70% stake in the business for an initial payment of USD 500,000 via its newly incorporated subsidiary, Tutorfly Holdings Inc. The remaining 30% will be held by the founders through their existing company, Tutorfly Inc. Kip McGrath will make a further payment of USD 500,000 to Tutorfly Inc. when Tutorfly achieves USD20,000 per month net revenue targets (calculated as revenue less tutor fees). Under the Agreement Kip McGrath grants an option for Tutorfly Inc. to sell its remaining 30% stake to Kip McGrath for USD 2,000,000 in cash, an equivalent number of Kip McGrath shares or a mixture of cash and shares. This option may be exercised once the business achieves USD 50,000 per month net revenue targets. The option will allow Tutorfly Inc. to subscribe for and be issued USD 2,000,000 in Kip McGrath shares up to a maximum of 2,000,000 shares. If the USD equivalent price of Kip McGrath shares that may be issued under the option at the time of exercise is less than USD2,000,000, then Kip McGrath will pay Tutorfly Inc. the shortfall amount in cash. The option is issued within Kip McGrath’s 15% placement capacity under ASX Listing Rule 7.1. Alternatively, Tutorfly Inc. may elect to receive cash instead of Kip McGrath shares at the time of exercise. Completion of the acquisition is expected to occur in September 2021 and is conditional on a number of standard corporate conditions precedent being satisfied or waived, including:
 • Systems: All relevant IT and telecommunications systems being in place for Tutorfly Holdings Inc. to operate the business.
• Support Agreement: Tutorfly Inc. entering into an agreement to provide software and business advisory support to Tutorfly Holdings Inc. on terms satisfactory to it.
 • Third party consents: Tutorfly Holdings Inc. receiving duly executed copies of all required third-party consents, approvals and assignments (including any assignments of software licenses) required to effect the sale. 2 Management Commentary The Kip McGrath CEO and Managing Director, Storm McGrath advises Tutorfly is a strategic move for the company. “We are looking to expand our business into other areas of the tutoring and supplementary education market and in particular the USA, which is the largest tutoring market in the world.
 Tutorfly is a marketplace business where tutors and students are matched through a pairing algorithm with software which is globally scalable.
 The rapid growth of the business during the difficult 2020/21 US school year was very exciting.
Through the injection of additional funding, it is expected these numbers will grow quickly again for the new 2021/22 school year. In addition, there are other synergies between the businesses.
 Being able to share the technology of a fast and nimble online only business with the experience and knowhow of Kip McGrath, opportunities will be realised almost immediately. The Texas-based Tutorfly Head Office will also provide Kip McGrath with a launch pad for centres into the USA market.” The co-founder and CEO of Tutorfly Inc., Parsa Rezvani said “The combination of an established bricks and mortar tutoring centre brand and the know-how within the tutoring space of Kip McGrath, along with the robust technology stack, with differentiated and effective peer tutors in Tutorfly, will be a significant force. The Tutorfly brand is already well established in tutoring marketplaces across the USA and allows parents to browse, contact, and hold virtual tutoring sessions with tutors of their choosing, without needing to go through a Tutorfly employee. The Tutorfly Team is especially excited to team up with Kip McGrath to further equip Tutorfly Tutors and students with proprietary Kip McGrath content, curriculum, and training materials.
 We also see other synergies between the two groups down the line, especially as Kip McGrath looks to provide more flexible tutoring options to its tutoring centres globally. My co-founder, Alejandro Mendoza and I will be pleased to serve on the Board of Tutorfly Holdings Inc. from completion and commit to being great partners to Tutorfly’s new management team.
 In fact, we intend to sign a Service Level Agreement (SLA) that has our new company, GoSchoolBox.com, maintaining the technology stack of Tutorfly for at least 12 months, to enable the management team to focus on scaling the business operations of the company. On a more personal note, my parents immigrated from Iran as teenagers during the revolution of 1979 in search of educational and work opportunities. Education propelled them from their status as poor immigrants to becoming successful in their respective careers in education and engineering.
 Amidst an ever-changing world, we remember that education is the one true equalizer in our world. It’s humbling to become a part of an organization started by the McGrath family that shares our Rezvani family’s values”. Storm McGrath added: “The global tutoring market is changing rapidly. Parents and governments are looking at ways to rectify the learning gap created by COVID-19 and to ensure children have the best opportunity possible to reach their highest potential.
 Being able to offer two brands working together in different segments of the market, demonstrates Kip McGrath is focused on additional ways to grow the business faster. With Tutorfly a standalone business it will allow us to continue to focus on growing the core Kip McGrath Business at the same time. We look forward to working with Parsa and the Tutorfly Team to grow the Tutorfly business.” The Board has approved this announcement.

DYOR

 this ann . is a little old  , but  leaves one to wonder their definition  of 'stand-alone '   is the new business  'an empire unto itself ' or will there be intelligent cross-pollination of ideas  , where suitable

 now i am always cautious over international expansion  plans  as it increases regulatory risk

 i NORMALLY look at KME  and wonder if  the education regulators will throw a box of wrenches  at this sector to protect  the image of the public and private school system ( including the 'universities ' )


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## galumay (22 February 2022)

Very good H1 2022 results for KME out today, given the headwinds they have faced in recent times they have done very well.


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## galumay (23 August 2022)

FY 2022, a bit softer in the 2nd half, still reasonable result. no real surprises, I think they have done ok considering the potential of the impacts over the last couple of years. One thing I couldn't work out was the drop in NTA.


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## divs4ever (23 August 2022)

galumay said:


> FY 2022, a bit softer in the 2nd half, still reasonable result. no real surprises, I think they have done ok considering the potential of the impacts over the last couple of years. One thing I couldn't work out was the drop in NTA.
> 
> View attachment 145837
> 
> ...



 might have shifted   from owned hardware/software  to cloud-based   .. just guessing 

 and in a post covid era  they may also have divested property assets ( leaving only leased/rented buildings )


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## galumay (23 August 2022)

Nothing I could find in the balance sheet.


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## divs4ever (23 August 2022)

from memory they were expanding internationally as well so  it MIGHT be changes in accounting standards  to accommodate operating in new jurisdictions 

 but yes  the drop in NTA  is an eye-brow raiser 

 also see the Tutor-Fly deal  ( December 2021 ) that included shares  in the transaction so part of it might  be  share-holder dilution


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## galumay (23 August 2022)

I thought of the dilution, but thats not going to get you from 4.5c to -0.66!

Could be changes in accounting standards, but I would expect to see that in the balance sheet and notes?


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## divs4ever (23 August 2022)

since you are shareholder ( unlike me )  perhaps you should ask them directly  .

as i have said earlier  ( when i sub-contracted  for them  ) they were reasonable to deal with  ( 20 years  back )

 the drop in NTA should be  ( mostly ) explainable 

 MAYBE  there is  cash held in trust  in case the Tutor-Fly (original ) owners  choose cash instead of KME shares  when to options expire 

 but that still shouldn't leave the NTA negative  

 depending on your information sources   the US is heading into boom ( or dark ) times 

 will there be an increased trend into home-schooling ??? ( which would be a nice trend for KME  especially with the increased acceptance of lessons via Zoom )


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## galumay (24 August 2022)

Oh I have already emailed them asking about it, I just mentioned it here because there are many investors much smarter than I, and it might have been something obvious I was missing that you or someone else saw straight away!


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