Ann: Half Yearly Report and Accounts, page-2

Interesting report.

Headline numbers are weak and they should have built the online product in html5 in the first place. If they succeed with licensing then the 300k will be well spent but if not it is a waste. I do not like the sound of:

"Our current pilots have found some reluctance of teachers to do things differently to get better results."

However I applaud the fact that Kip has shared this with us.

On the other hand if we adjust for the timing differences of new franchise sales and one-off costs then we get ebitda of $1.2m+ assuming that the HTML5 upgrade was capitalised. This is very good compared to last year's $900k which was also very good compared to other years. Historically the profits are skewed to the second half of the year and so we can assume that normalised ebitda for existing ops is $2.5m+ which translates to PBT of around $2m.

MC 16m
Net cash ~1m (after taking out restricted cash)

EV/PBT = 7.5

The traditional business is still growing so based on this multiple KME looks very reasonably priced. The licensing and online opportunities are just free options with unknown probability and large impact should they materialise.

If they do manage to hit last year's profit for the FY as guided, then it will be a very good result indeed considering the one-off costs they've carried this half.