Thursday, January 18, 2007

KME makes intelligent purchase

Kip Mcgrath Education Centres (ASX:KME) has been one of my selections for a while (since 80c) and it has done quite nicely for me. They have come out today and announced that they have purchased 40% of GGG Pty Ltd.

I have copied some of the paragraphs from the announcement below and highlighted the important points.
GGG Pty Ltd is the owner of the computer program QAX which is a computer based program for teaching mathematics to children from Kindergarten to the end of high school. This will extend the age group KME caters for from 6 to 16 years, to 4 to 18 years of age.

The developer of QAX is a franchisee of KME and has the largest Kip McGrath centre in the world. KME believes that the addition of QAX will add to the number of students in centres and increase revenue received from franchisees all over the world.

QAX will be offered to existing franchisees at an additional cost and will therefore be a source of income for KME. QAX fits in with the core business of teaching supplementary education to school age children. QAX is already used in some Australian KME centres as well as 42 schools in Queensland and has 50,000 students using the program. It is the intention of KME to sell the program to schools in other states of Australia and for franchisees all over the world to use the program.

The purchase price of the 40% stake in QAX is $1.4M and the funds will be 100% borrowed by the company. KME has an agreement in place for the purchase of a further 10% of the company, enabling KME to take a controlling interest in the business. It is believed that the acquisition will be immediately EPS positive in this half, after interest, and will add significantly to profit in the 2007-08 year and subsequent years.

The company has an agreement to buy the remaining 50% of GGG Pty Ltd for a capped
amount should the other shareholders wish to sell in the future.

This is quite a good announcement for the company and I think it is keeping within the core business environment in which they operate. I like any companies that make strategic purchases so that they are immediately EPS positive.

Good Luck Investing.

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