Normal
Like I have stated in other threads before these types of service based "roll-up" stories tend to go good for a while and then they eventually blow up later down the track (a lot of them still survive but they limp along at a much lower level of profitability and valuation). Not 100% of the time but I would say in Australia it would be a majority of cases.Think ABC learning, G8, Count, Healius and many others. I've already talked about the mechanics of why this occurs in other threads. But if I owned this stock I would definitely be looking to take profits now before it blows up further down the track.In accounting practices there really is not too much benefit from scale. Sure you get a small amount of marketing benefit from having national advertising campaigns and maybe slightly lower costs on the software you use in your business but those are both offset by the additional corporate overhead that comes with a large corporation. Additionally its a personalized service. If you buy Jack Black Accounting pty ltd. Clients want to deal with Jack Black or else they would have chosen a big company like HR Block from the start. Even if you put a long-term agreement in place what happens when Jack Black retires? Most business owners selling into these corporate roll-ups its a plan for eventually transitioning to retirement. And once they exit the business is usually worth a lesser amount.The main game with these things is playing the public to private multiple arbitrage game.Based on underlying earnings of $0.178 Kelly Partners Group is trading on a trailing p.e. of 43.You can typically buy a small local accounting business on average for around 4.3 times p.e. literally 1/10 of the multiple that the stock is trading at. So Kelly Partners Group can just decide to issue a huge amount of shares through share placements, etc and buy up lots of small accounting firms. Of course this business model only works for as long as the stock price is flying high. So far they have avoided issuing shares but with the share price where it is they would be silly not to take advantage and issue some shares.I do not own the stock but if I did I would sell before it comes crashing down. I have seen this story play out too many times already.
Like I have stated in other threads before these types of service based "roll-up" stories tend to go good for a while and then they eventually blow up later down the track (a lot of them still survive but they limp along at a much lower level of profitability and valuation). Not 100% of the time but I would say in Australia it would be a majority of cases.
Think ABC learning, G8, Count, Healius and many others. I've already talked about the mechanics of why this occurs in other threads. But if I owned this stock I would definitely be looking to take profits now before it blows up further down the track.
In accounting practices there really is not too much benefit from scale. Sure you get a small amount of marketing benefit from having national advertising campaigns and maybe slightly lower costs on the software you use in your business but those are both offset by the additional corporate overhead that comes with a large corporation. Additionally its a personalized service. If you buy Jack Black Accounting pty ltd. Clients want to deal with Jack Black or else they would have chosen a big company like HR Block from the start. Even if you put a long-term agreement in place what happens when Jack Black retires? Most business owners selling into these corporate roll-ups its a plan for eventually transitioning to retirement. And once they exit the business is usually worth a lesser amount.
The main game with these things is playing the public to private multiple arbitrage game.
Based on underlying earnings of $0.178 Kelly Partners Group is trading on a trailing p.e. of 43.
You can typically buy a small local accounting business on average for around 4.3 times p.e. literally 1/10 of the multiple that the stock is trading at. So Kelly Partners Group can just decide to issue a huge amount of shares through share placements, etc and buy up lots of small accounting firms. Of course this business model only works for as long as the stock price is flying high. So far they have avoided issuing shares but with the share price where it is they would be silly not to take advantage and issue some shares.
I do not own the stock but if I did I would sell before it comes crashing down. I have seen this story play out too many times already.
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