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Kip McGrath (ASX:KME) share price jumps on HY21 results

Kip McGrath Education Centres Limited (ASX: KME) released its results for the half-year (HY21). Is it time to learn more about Kip McGrath and add it to your ASX watchlist?

Kip McGrath has been tutoring primary and secondary school children throughout the world to improve or extend their learning, particularly in English and Maths. It operates primarily across Australia, New Zealand, and the UK.

Business shows resilience

Kip McGrath faced adverse challenges presented by COVID, with revenue marginally declining by 2.2% relative to the prior corresponding period, HY20 (PCP).

COVID restrictions caused a steep decline in face-to-face learning, but this was offset by a strong boost in the take up of the online learning option on the software platform.

The small decline in revenue combined with an increase in employee and marketing expenses resulted in EBITDA and net profit after tax going down by 6.8% and 19.3%, respectively, compared to the PCP.

Employee expenses rose by $418,000 as a result of hiring new teachers to meet the growth in student numbers for online direct tutoring. Student numbers in Australia and New Zealand have grown to 500 per week, with the UK at 130 per week in this segment.

Despite a lower bottom line, the company declared a fully franked interim dividend of 1 cent per share.

Management to capitalise on online movement

The Kip McGrath management team has noted they are focused on transforming the business from a franchise-only face-to-face tuition business to a multi-channel, blended learning global tutoring business.

To execute this strategy, the company has hired a chief technology officer, chief product officer, and chief commercial officer (focused on Australasian growth).

Kip McGrath also invested $1.44 million in ongoing development of its specialised software and curriculum during the half.

What are my thoughts?

It seems Kip McGrath came through relatively unscathed after a horrible year for the educational business industry.

It’s encouraging to see management is focused on strengthening its online offering, which I believe will be a key driver of future growth. Students may prefer to attend classes physically but they will also prefer to have the option to take an online class.

Investors should keep an eye on employee expenses, which represent the highest variable cost. If the teachers hired by Kip McGrath can cater to more students per lesson, this could go a long way to achieving higher margins.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned

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