KME looks pretty cheap given strong growth and earnings outlook on the back of successful restructuring initiatives, business expansion and positive commentary from Directors: “The company is budgeting an increased profit in FY 2014 with increased revenue from the major initiatives”.
$6.6m m/c + $1.2m net debt = $8.2m EV ; so with FY13 EBITDA at $1.2m = 6.5x FY13 EBITDA. [compare to RDH trading at 14 x FY13 EBITDA]
Balance sheet is not a worry as they are paying down bank debt from their strong surplus cash All convertible notes now converted, so only $2.2m in bank debt remains (annual saving of $150k in interest). Net debt of $1.2m now represents approx 1x EBITDA.
Given the royalty model, KME just need to sit back and collect the $’s for the bulk of their revenues….will benefit from a declining AUD
Management expect the high margin on-line tutoring services to scale up to contribute 15% of total revenues over the next 3 years and 50% over 5 years
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