Kip McGrath Education Centres Limited (ASX: KME)

KME was established in 1987 and is engaged in providing written and computer-based activities program through franchise model to help primary and secondary school children in Australia, UK and NZ. It holds a market capitalization of AUD 56.39 million as of 22^nd November 2021.

Financial & Operational Updates – As per AGM presentation to shareholders released on 16^th November 2021, it stated its interest of transforming its face-to-face tuition business to a global multi- channel blended learning model. Despite the lockdown, Total Network Revenue from online tutoring increased by ~129% Y-o-Y to ~AUD 32.6 million (Pcp). Online blended lessons to make-up ~20%-40% of the total business in future. The purchase of 70% in the US-based Tutorfly.com in September 2021 will benefit its KMEC centres in USA in FY23. KME rapidly expanded its learning centres in Brisbane, Melbourne, Perth and Gloucester. Its EBITDA reduced by ~3% Y-o-Y at ~AUD 5.1 million in FY21, with a ~25% increase in Marketing Expenses to ~AUD 3.5 million and a total of ~AUD 7.1 million was reported as Wages and Salaries Expenses (with ~30% increase in headcount). Its Net Profit after Tax increased ~10.2% Y-o-Y from ~AUD 1.57 million in FY20 to ~AUD 1.73 million in FY21. Cash at the end of FY21 was reported as ~AUD 10.57 million as of 30^th June 2021 after an investment of ~AUD 2.7 million in technology (~63% up) to convert into a multi-channel.

Technical Analysis: KME prices witnessed a decent upside movement in the past couple of sessions and gained ~21.94% from November 17, 2021 low. Prices made a high AUD 1.195 on November 22, 2021, but were unable to break a crucial resistance of AUD 1.200, indicating the possibility of a downside correction. On the daily chart, the momentum oscillator RSI (14-period) has entered the overbought zone and placed at ~73.180 levels, supporting a downside correction. However, the CMP is above 50-period SMA and 21-period SMA which may act as the resistance levels for the stock.

The stock of KME has delivered one month returns of ~12.63%. Considering the company’s decline in EBITDA for FY21 and widening competition in online tutoring, we suggest investors to “Sell” this stock at the current market price of AUD 1.195 per share as of 22^nd November 2021, 12:39 PM (GMT+10), Sydney, Eastern Australia.

Daily Technical Chart – KME

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.