"Based on their previous actions including this monthly...

"Based on their previous actions including this monthly dividend, I feel like they are looking to prop up the share price with the end goal of doing capital raises to fund their roll up-strategy (nothing wrong with that)."

I don't believe that's at all correct.

Unless they want to undertake a monster acquisition of some sort (which I don't believe they do... easy-to-digest, bite-sized, tuck-ins is what they describe as the acquisition strategy), they have absolutely no need to raise additional equity capital to fund their growth.

Being a professional services business, it's highly cash-generative.

For context, assessing KPG's sources and application of capital over the 4 years since its 2017 IPO:

- Cumulative total Operating Cash Flow of ~$36m
- Total investment in PP&E of $6.4m

(So, only 18c in each dollar of organic capital generation has needed to be retained to maintain the business.)

- Total Acquisitions amounted to $11.7m

So that means a cumulative Net Surplus (i.e. even after all maintenance as well as growth capital spend) of ~$18m since IPO, which has been available to service capital providers.


As it happens, that surplus was applied exclusively to servicing equity capital - i.e., dividends and a token share buyback; not debt capital.

Net debt has in fact risen from $11.7m in FY2017 to $15.2m at end of FY2020 (so a 30% increase), but this has been more than matched with increases in Revenue and Pre-Tax Profit of 54% and 57%, respectively.

So despite an aggressive, internally funded acquisition strategy over the past 4 years, as well as generous returns to shareholders, KPG's solvency metrics remain in fine condition: Latest Net Debt-to-Trailing Pre-Tax Profit is 1.4x , compared to 1.7x in FY2017 and Net Debt-to-Equity is just 66%, cf. 59% at the end of FY2017.

There is ample headroom to take on more debt and as a shareholder, given the cheap cost of debt as well as the company's ability to rapidly pay down debt due to its cash generative nature, I would not have a problem with doing so.



In summary, no one should be so naive as to say "KPG will never raise capital", because a rare and unique opportunity might arise which would justify recourse to shareholders for funding.

But under the KPG growth-by-acquisition strategy demonstrated over the company's listed life, there is absolutely no requirement for fresh equity to support the continued growth in the business.

As you yourself say, its a capital-light business.
It's surplus capital generation is quite prolific.


"Why don't just keep doing what they have been doing and grow steadily? Where their share price is trading day to day doesn't affect their business."

Growing is a steady and manageable way is exactly what they are doing.

My clear sense, whenever I speak to the company's executive chairman, is that he spends very little time worrying about where the share price is, and why it is where it is, at any given point in time.

Instead, I suspect that the last thing he thinks about before he goes to sleep each night, and he first thing that pops into his head when he wakes up the next morning, is the following picture:





I have no doubt that he is of the view that, if the objectives represented in the above chart are met, then the share price will take care of itself.

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