Kip McGrath Education Centres Limited

KME Details

Selected for NSW Government’s Learning Program: Kip McGrath Education Centres Limited (ASX: KME) provides services to franchisees in the education industry. KME is also involved in the sale of franchises. The company operates in Australia and overseas, mainly in New Zealand and the UK. As of 6 July 2021, the company’s market capitalisation stood at ~$64.75 million. On 18 June 2021, KME declared its selection for the NSW Government’s COVID learning program in high priority schools (for online and face to face lessons). 

Expanded Corporate Centres: On 1 April 2021, KME announced acquiring corporate centres (four) in Melbourne and Brisbane for $0.4 million. The company notified re-opening of New Lambton Corporate Centre in Newcastle for School Term 2 in April 2021. With these newly added centres, KME now has twelve (12) active corporate centres in Australia and New Zealand.

Key Takeaways from 1HFY21 Results: The company reported $8.54 million of revenue in 1HFY21, down by ~2.2% YoY due to the impact of COVID-19. KME reported 800% YoY growth in online tutoring lessons to 290K in 1HFY21. KME posted an increase of 19.3% YoY in NPAT to $826K for 1HFY21. The company distributed an interim dividend (fully franked) of 1 cent per share on 24 March 2021. KME held $11.823 million of cash and cash equivalents as of 31 December 2020.

Revenue & Profit After Tax Trend from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The Company faces the risk of a decline in student attendance and centre closures due to the COVID-19 crisis. The business operations and instruments are also exposed to foreign currency risk, credit, and liquidity risks.

Outlook: With the recently added centres, KME expects the student attendance at its corporate-owned operations to increase above 2,300 per week by mid-April. The firm estimates a positive revenue impact of $0.9 million in FY2022 and a $0.2 million gain in EBITDA. The company is looking at options to acquire corporate centres in the UK market as well. Besides, KME has planned to launch new software for its franchisees in 2HFY21 for improved tutoring methods.

Stock Recommendation: The stock of KME gave a negative return of 13.88% in the past six months and a positive return of 18.66% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.890 - $1.645. On a TTM basis, the stock of KME is trading at a price to book value multiple of 3.7x lower than the industry (Consumer Non-Cyclicals) average of 7.7x, thus seems undervalued. Considering the low trading levels, an increase in NPAT, corporately owned centres and online tutoring growth in 1HFY21, the decent outlook for revenue and EBITDA in FY22, planned inorganic growth in the UK, valuation on a TTM basis and related risks of pandemic disruptions, closure of centres, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.240 (as on 6 July 2021 10.59 AM (GMT+10), Sydney, Eastern Australia).

KME Daily Technical Chart, Data Source: REFINITIV 

Osprey Medical Inc

OSP Details

Financial Highlights of Q1FY21: Osprey Medical Inc (ASX: OSP) has developed DyeVert™ System, a proprietary dye reducing, and monitoring technology used by physicians in heart imaging procedures. As of 6 July 2021, the market capitalisation of OSP stood at ~$35.92 million. On 2 July 2021, OSP announced that Director, Steven Brandt, joined the company on 1 July 2021. OSP also declared the termination of 1.51 million options under ASX code OSPAO due to the expiry or non-conversion of options to shares. The company posted ~US$586,000 of revenue in Q1FY21, up by 21% QoQ due to progressing recovery in sales from the COVID-19 impact in the previous quarters.

OSP generated cash receipts of US$501,000 from customers in Q1FY21, up by US$20,000 from Q4FY20. OSP reduced operating cash outflows and net cash used in operations by 43% YoY and 35% YoY, respectively in the March quarter. It held a cash balance of US$17.7 million as of 31 March 2021.

Revenue & Net Loss Trend from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of COVID-19 disruptions in elective heart procedures and limited hospital access to the company’s sales representatives. 

Outlook: OSP aims to progress on the global commercialisation strategy by entering strategic agreements outside of the US (OUS). OSP has forayed into the Australian market through the Regional Health Care Group and received repeat orders from GE Healthcare in EMEA (Europe, the Middle East and Africa). The company will continue to exercise appropriate fiscal control to maintain its present activity level in these uncertain times. In the USA, OSP inked seven (7) independent sales agency agreements (ISAs) and has received the first order from one of its ISAs. The company expects to receive more orders from the ISAs and complete their joining and training in the coming quarters.

Stock Recommendation: The stock of OSP gave a positive return of 7.69% in the past week and a negative return of 22.22% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.013-$0.060. On a TTM basis, the stock of OSP is trading at a price to book value multiple of 6.3x lower than the industry (Healthcare Equipment & Supplies) average of 11.0x, thus seems undervalued. Considering the current trading levels, increase in revenue and cash receipts in Q1FY21, orders from US and OUS, and valuation on a TTM basis, and associated risks of the pandemic disruptions with limited access to hospitals and heart imaging procedures, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.014 (as on 7 July 2021, 11: 26AM (GMT+10), Sydney, Eastern Australia).

OSP Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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