Classic case of growth by acquisitions

Kelly Partners has a simple business : accounting for SME.
So, without any surprise, this is a very stable business.
What's more surprising is the performance of the share price : it went from 1 $ (IPO price) in 2017 to 3 $+ now.
Main reason I could identify : the success of their M&A strategy.
Thanks to this strategy, they were able to grow their revenue by 15 % per year (since IPO), while maintaining a high level of margin (EBITDA margin went from 29 % in FY 17 to 30 % in FY 20).
They have also reached a high level of ROE of 49 % (=trailing 12 months NPATA / equity).

One of the main interest of their model : it is not capital intensive, so a great part of their EBITDA is converted to free cash flow (cash conversion of 93 % since IPO).

They are also quite good at optimising the way they use their free cash flow :
- most of it is used to do acquisitions (they have not raised equities since their IPO, rare case for a company which is growing by acquisitions),
- the company has also been quite active to buyback its shares (1.1 % of its shares have been bought back since IPO), with a large part done between July and Dec 20 (when the stock went from around 1 $ to more than 2 $),
- they also have a high pay out (60 %+) and increased its dividend by 10 % per year since IPO.

The stock has increased by around 50 % since the beginning of the calendar year.
One of the main reason is probably the fact that the company has communicated on targets for FY 24 which shows an acceleration of its profit, while still expecting to grow its top line by 15 % per year.

The stock looks cheap compared to its growth looking at ratio like EV/EBITDA or free cash flow yield.
However, it is a bit misleading as the company has a high level of minority interests (EBITDA and free cash flow should be corrected for the minority interests).

The company has a tiny market share that it estimates at 0.4 % in Australia (still mainly in NSW), in a market for accounting firms which is very fragmented. So they probably still have ample room to continue to grow by acquisitions.