[Ethical Equities Contribution] Kip McGrath Education Centres (ASX:KME) FY 2018 Annual Results

The tutoring company Kip McGrath (ASX: KME) released its results on Friday showing a continuing implementation of its long term strategy. It’s steady as she goes.

Net Profit after Tax (NPAT) has grown by 41% to $2.0m. The company has done this amidst a flat revenue of $13.7m (more on that below). This represented an expansion of NPAT margin from 11% in FY17 to 15% in FY18. More impressively, this was not a 1 year trend. Kip McGrath has consistently grown its margin from 2% in FY12.

Behind this steady increase in margin lies a change in the business model of Kip McGrath over the years. They have become less a labour-intensive business, to a more capital light franchise operator. The journey started 8 years ago when they first trialled the Gold Franchisees model.

To read the rest of my post: Go to https://ethicalequities.com.au/2018/08/20/kip-mcgrath-education-centres-asxkme-fy-2018-annual-results/

[Ethical Equities Contribution] Energy Action (ASX:EAX) Improving: FY 2018 Annual Results

A Turnaround Story

The turnaround story here is not too uncommon. Energy Action once had a nice little business which was capital light and high margin. Under the old management, the business committed major unforced errors; ‘di-worsification’, neglecting their existing technology, and taking on too much debt. Theirs was a misguided strategy, as we publicly and correctly predicted it would be.

Cue the new management, who do some things right, such as keeping costs under control, marketing their existing business and not acquiring low margin projects businesses….

To read the rest of my post: Go to https://ethicalequities.com.au/2018/08/17/energy-action-asx-eax-improving-fy-2018-annual-results/


Learning to Love Short Sellers and “The China Hustle”

Over the weekend, I got the chance to watch “The China Hustle”, a financial documentary by Jed Rothstein. The documentary explores the sinister nature of Chinese companies reverse takeover into US stock exchanges.

The “Hustle” part of the title refers to the fraudulent nature of many of the listings. It explored patterns of faked numbers, technologies and facilities. The documentary shows the journey of sceptical short sellers to uncovering the misconduct and profit from them.

Continue reading

[Rask Media contribution] Aussie Private Equity: Not Everything It’s Cracked Up To Be?

Private equity (PE) as an asset class has boomed globally. Demand for ownership of businesses which are not listed on stock exchanges (making them ‘private’ companies) has been a boon for investors.

As the Australian Financial Review (AFR) reported last week, at the end of 2017, the global PE industry was, “sitting on a record level of dry powder of $US633 billion.” This was a direct result of fundraising activity of global PE firms. Data from industry tracker Preqin showed that global PE firms raised a huge $US453billion in 2017.

But in the face of the demand for these investments, Daniel Rasmussen of Verdad Advisers has a sceptical opinion on the state of the current PE environment….

To read the rest of my post: 

Go to Rask Media https://www.raskmedia.com.au/2018/03/04/aussie-private-equity-not-everything-cracked/

[Rask Media contribution] The Best Quotes From Warren Buffett’s Latest Berkshire Hathaway Letter

Berkshire Hathaway’s latest chairman letter was released late Saturday night. The annual letter by Warren Buffett has been a great source of wisdom for aspiring investors globally. While this letter was one of his shorter ones in recent times, it still is a very worthwhile read for investors…

To read the rest of my post: 

Go to Rask Media https://www.raskmedia.com.au/2018/02/25/best-quotes-warren-buffetts-latest-berkshire-hathaway-letter/ 

Back to the Future- Howard Marks on Cycles

Howard Marks’ latest memo came out yesterday. It was insightful and objective.

The usual stuff.

In the memo, he mentioned that he was writing a book about cycles. I am eagerly waiting for that book to come out.

There was another Howard Marks’ memo that I re-read from time to time, which was also about cycles. It is titled “You Can’t Predict. You Can Prepare.” It was written in Nov 2001, when the US experienced its first recession since 1991.

In this post I will liberally take excerpts from the 2001 memo.

It’s mostly a reminder for myself the inevitability of cycles amidst the current environment. Continue reading

HRL Holdings, a tale of a roll-up and a lucky break

A good roll-up can be long and enjoyable. No no, I’m not talking about the lolly. The type of roll-up I’m going to be talking about can be much sweeter or sourer depending on your timing and how it was put together.

If you had your ears open, you would have been privy to the worst kind of roll-ups. The type that blew up. ABC learning’s collapse of child-care roll-up, from what was then the world’s largest operator of child care operator. In more recent times, there were Slater and Gordon (law firms roll-up) and Retail Food Group (restaurant franchises roll-up).

The road is indeed littered with disasters.

The difficulty in sustaining a successful roll-ups is structural. As the holding company becomes larger, it requires even larger acquisitions to keep boosting its revenue and profits. The integration then becomes harder and more error-prone. Add debt into the equation and the mix can be even more explosive. Continue reading

Locality Planning Energy

The energy utility sector has provided its fair share of headlines this year. From crippling blackouts in SA, stand-offs between AGL and the Australian government over the Liddell coal power station to soaring energy prices, it has certainly been a talked about issue.

One company that can form part of the solution is Locality Planning Energy (ASX: LPE). LPE is an electricity retailer (largely in QLD) that specialises in serving strata communities. In a strata community, each lot pays its separate network and metering charges. Locality Planning Energy comes in and installs a parent meter and thus consolidates the network and metering charge for the strata. After this procedure is completed, the strata then becomes an embedded network with LPE as the electricity retailer. Continue reading

The hazard of sub-scale companies

Scale. It’s a fickle thing. All companies want to harness its absolute potential, yet only a few really are able to fully utilise it. Every company who made the jump from a microcap used it. It is one of the oldest theory in economics, yet many microcap investors overlooks it. One aspect particularly overlooked is when a company is sub-scale. Continue reading

A dozen lessons from reading Buffett’s early partnership letters (2/2)


  1. “A division of profits between the limited partners and general partner, with the first 6% per year to partners based upon beginning capital at market, and any excess divided one-fourth to the general partner and three-fourths to all partners proportional to their capital. Any deficiencies in earnings below the 6% would be carried forward against future earnings, but would not be carried back.” (1961)
    The Buffett Partnership fee structure is a thing of wonder (albeit only for superior investors). The structure was: zero management fees with a 25% performance fee above a 6% hurdle. This allowed a real partnership to form with a sticky capital base as Warren wouldn’t get paid if he didn’t produce above 6% return. He structured the fees so that he would be under less pressure during the down years- the riskiest time for the limited partners to liquidate their partnership, allowing him to stay invested during lean times and even deploying more capital at the more attractive market prices. Note that this fee structure is gaining more popularity with boutique funds (Mohnish Pabrai, Li Lu) as it truly aligned all parties’ interest. Personally, I use this structure when managing my family’s capital with a high watermark structure. Continue reading