Ferrets Stock to Watch: KIP MCGRATH EDUCATION CENTRES 09:15, Thursday, 10 May 2007
COMPANY'S PROSPECTS BOOSTED BY BUDGET SUPPORT FOR EDUCATION
Sydney - Thursday - May 10: (RWE Aust Business News) ****************************************************
OVERVIEW ********
The Ferret drew investors attention to this stock after it floated in 2003.
Kip McGrath Education Centres (ASX:KME) has since expanded significantly and paid dividends.
On Tuesday the company was among recipients of financial funding for education, announced by the Treasurer Peter Costello.
Kip McGrath is one of Australia's leading providers of educational tutoring.
The company welcomed the Federal Government initiative in providing additional financial support for out of school tutoring.
Joint CEO, Storm McGrath, said its centres have been inundated in the wake of the announcement by parents wanting to know how best to take advantage of the scheme.
"The Government has identified the need to support parents and children who need that little bit of extra professional guidance and tutoring," Mr McGrath said.
"What parents need to do first is to identify and only use providers that are members of the Australian Tutoring Association to ensure their children receive most benefit.
"It is through these providers that parents can be assured of qualified teachers using appropriate assessment tests that help to take children to their potential," he said.
Mr McGrath said the company will carefully assess the scheme as details became available and advise parents and children accordingly.
He was keen to discover if the new provision would allow testing for learning difficulties.
"If a child is tested at six years of age and found to have some learning difficulties we may get 100 per cent correction if the problem is picked up early enough.
"If caught later it could be more difficult," he said.
Kip McGrath Education Centres is renowned for its contribution to remedial learning.
However it did not confine its work to that area and was equally recognised for assisting children to who aspire to a university or higher education qualification which it also provides.
Meanwhile on the business side, Kip McGrath Education Centres has completed the purchase of a further 10 per cent share of Triple G Technology Pty Ltd, to take a 50 per cent stake in the business.
It could not have been at a better time.
Triple G is the owner of QAX, a computer program which teaches mathematics to children from kindergarten to the end of high school.
This will extend the age group KME caters for from 6 to 16 years to 4 to 18 years of age.
The developer of QAX is a franchisee of KME and has the largest Kip McGrath centre in the world.
KME believes that the addition of QAX will add to the number of students in centres and increase revenue from franchisees all over the world.
QAX will be offered to existing franchisees at an additional cost and will therefore be a source of income for KME.
SHARE PRICE MOVEMENTS *********************
Shares of KME climbed 28c to $1.68 yesterday. Rolling high for the year is $1.69 and low 57c. Dividend is 5.75pc to yield 3.55pc. Earnings per share is 5.1c and p/e ratio 32.94. The company has 18.4 million on shares on issue with a market cap of $29.8 million.
The China operations have been changed to the Master Franchise strategy which has proven to be highly successful for the company over the past 14 years.
Master Franchise Elevate Education Pty Ltd has been deconsolidated from KME's accounts as a result of the company rescinding effective control of this entity to concentrate on its core business.
The 2006-2007 guidance says the company still believes that its profit will be in line with previous guidance. Company-owned centre losses will be off-set by the profit resulting from QAX.
Net profit is expected to come in between $1.4 million and $1.5 million.
QAX fits in with the company's core business of teaching supplementary education to school age children.
It is already used in some Australian KME centres as well as 42 schools in Queensland and has 50,000 students using the program.
It is the intention of KME to sell the program in other states of Australia and for franchisees and schools all over the world to use the program.
QAX will be used as a base for the development of other subjects and materials for KME centres and schools, further increasing KME revenue and profit in the future.
The company is excited by QAX's potential for direct sales into the home education market.
The program's educational content will provide students with access to quality educational materials with reports and feedback for students and parents.
The centres will provide a support basis for students requiring additional personal assistance.
The purchase price of the 50 per cent stake in QAX is $2.5 million and the funds have been 100 per cent borrowed by the company.
It is expected that the acquisition will be immediately EPS positive this half, after interest, and will add significantly to profit in the 2007-08 financial year and subsequent years.
The company has an agreement in place to buy the remaining 50 per cent of Triple G Technology for a capped amount should the other shareholders wish to sell in the future.
The purchase is consistent with the board and management's strategy to grow KME franchise centres and their business profit whilst growing KME's core business and profit.
BACKGROUND **********
Kip McGrath Education Centres is a franchisor of proprietary education materials and a business system.
In addition to assigning franchise territories, KME provides the KMEC System and material for franchisees to conduct their businesses.
The founders of the company, Kip and Dugnija McGrath, opened their first education centre in Maitland, NSW, in 1974.
Within a short space of time the McGraths had opened six centres in the Hunter Valley.
They ran these centres successfully for 10 years before choosing franchising as the means of expanding beyond their regional constraints and thereby growing the business further.
Today there are approximately 630 KME franchised centres in 20 countries worldwide.
In the past two years the company has opened over 30 franchised centres overseas.
They offer children aged between 6 and 16 years tutoring in the basic skills of reading, spelling, English and maths.
KME derives its income from the sale of franchises and ongoing fees paid periodically by franchisees.
It is regulated by the Franchising Code of Conduct within the Trade Practices Regulations 2001.
The business assists young people to improve their literacy and numeracy skills to take advantage of opportunities in the modern world.
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