Seems like a decent result from Kelly Partners last week:

The disconnect between revenue and profit growth are largely attributable to the impact of new acquisitions and added investment. They reckon they can lift operating margins back to 35%, and have some good form on this front -- in fact adding operational efficiency is pretty much what they try to be all about.

Thumb sucking the next 12m of dividends, i reckon shares are on about 2% or so. The forward PE is probably around 25. While I think they can probably sustain a respectable average long-term growth rate (7-9% or so), it feels like shares are roughly around their fair value.

(Reactivating some initial notes i posted here a while ago.) 

A roll-up play for SME sized accountancy practices. Generally not interested in services business OR roll-ups, BUT...

• Still at an early stage. This is when roll-ups work best, when incremental gains from a low base really help move the dial, and the acquirer has a lot of low-hanging fruit. 
• Appear to be getting good organic growth, so revenue growth not just purely a function of acquisitions
• Genuine partnership model with acquired partners retaining 49% interest
• Average age of acquired partners is just 42
• Well practiced at acquisition with around 30 completed since inception
• Business is profitable with +'ve operating cash flow. Pays a quarterly dividend 
• High target ROI for acquisition ~35%
• Large target market -- 10,000 firms or $12b in revenue

Was impressed by management at a recent conference I saw them present at.

As a roll up play of services businesses, KPG is usually something I stay a mile away from. But i bought a small parcel in 2019 and 2020 at 75c because it was just so cheap.

I was happy to exit at around $1, but now wish I had held on!

Revenue was up 5.8% for the first half of 2021, but improving margins saw net profit per share up 55% (excluding acquisition amortisation).

I think management are smart operators, and this is a growth model that works well in the early years (if done right). The company appears to be effectively capturing its niche and is approaching scale.

There's still a decent growth opportunity ahead.

On an annualised basis, the PE is just under 17 -- not too demanding, all else being equal.

There could be more upside here, but for this kind of business i usually want a pretty attractive discount. The low hanging fruit is picked early, quality acquisitions become harder to find, and less impactful when purchased.

That being said, the higher the earnings multiple, the more attractve the "multiple arbitrage" becomes (eg buying a business on 4x earnings using shares trading at 16x earnings).

I'll continue to watch, but not inclined to dip my toe back into the water just yet.

Results presentation here

The company is expanding well, recording a 23% growth in revenue and 53% NPATA growth for the first half of FY20.

Driven by price and volume increases and acquisitions, all of which appear to be delivering attractive returns. 

Still a large market opportunity and company appears to be executing well on its strategy -- one which is clear, disciplined and well practiced.

I believe their revenues are more defensive than you might initially expect, and it's great to have such a strongly aligned CEO (owns over 50% of shares).

It pays a quarterly dividend, which at the current price (77c) is yielding 5.3% fully franked.

Founder and other directors bought shares recently.

Results presentation here

I wrote some notes for the Strawman Blog -- see here