In quality compounding we are looking for businesses that are able to reinvest their annual cash flows against high returns over a long period. Kelly Partners Group appears to be such a business.
Thank you for your kind comments and happy to hear you want to conduct more research. Always invest based on your own research, that will make you a long term investor.
I mentioned the debt is in the operating companies and could have mentioned indeed that if debt cant be repaid in the OpCo that parent is not ending up paying for it. Actually I thought I had written this down, but apparently missed it in the end. Thanks!
Good research. What are your thoughts on CEO comp? I can't get my head around having it be a percentage of sales... the incentive is not aligned with shareholders (despite him being the largest shareholder). I would have thought the board would have come up with something more aligned. It's a risk for me with too much of the thesis tied to a CEO and then to have this incentive structure.
Otherwise, it is a very compelling story with a compounding runway ahead of them.
Kelly doesnt want to impact the shares outstanding and wants an incentive which also drops if company results would drop. I should have add it in the article, 1% of revenue is his annual incentive next to a base salary. If I compare this with Cbiz, then I agree it is high. Cbiz revenue around 1,5B which would mean 15M in compensation of Kelly would reach 1,5B revenue. CEO of Cbiz roughly gets a third in salary (~5M). However margins of Cbiz are much lower. If Kelly succeeds to grow the company and keeps margins as is I think we are far better of paying Kelly a huge compensation for the top class accountancy firm he has build. But it is fair to argue why it is not e.g. 0,5% of sales.
Nice post but the margins are wrong. No attention paid to the minority interest. Cut all of your margins in half and then some for the parent reinvesmtent. parent attributable EBIT margins would be 11-12% give or take
Great article & introduction to KPG, thank you! This leads to me wanting to research more about the business.
Thank you for your kind comments and happy to hear you want to conduct more research. Always invest based on your own research, that will make you a long term investor.
Yes 100% Agree, a thorough and investigative analysis is one of the most important things.
Iirc, the debt is at the operating business non-re course to parent kpg. Should alleviate the risk a little bit. Worth mentioning in the article.
I mentioned the debt is in the operating companies and could have mentioned indeed that if debt cant be repaid in the OpCo that parent is not ending up paying for it. Actually I thought I had written this down, but apparently missed it in the end. Thanks!
Good research. What are your thoughts on CEO comp? I can't get my head around having it be a percentage of sales... the incentive is not aligned with shareholders (despite him being the largest shareholder). I would have thought the board would have come up with something more aligned. It's a risk for me with too much of the thesis tied to a CEO and then to have this incentive structure.
Otherwise, it is a very compelling story with a compounding runway ahead of them.
Kelly doesnt want to impact the shares outstanding and wants an incentive which also drops if company results would drop. I should have add it in the article, 1% of revenue is his annual incentive next to a base salary. If I compare this with Cbiz, then I agree it is high. Cbiz revenue around 1,5B which would mean 15M in compensation of Kelly would reach 1,5B revenue. CEO of Cbiz roughly gets a third in salary (~5M). However margins of Cbiz are much lower. If Kelly succeeds to grow the company and keeps margins as is I think we are far better of paying Kelly a huge compensation for the top class accountancy firm he has build. But it is fair to argue why it is not e.g. 0,5% of sales.
Great article, thanks (long KPG for quite some time now).
Do note that you have 2 places where you got the currency wrong:
"this means the buy-below price of KPG is 10.00 CAD." --> should be AUD
"Currently we are paying close to 3 times sales for 2024, assuming 110M CAD in sales" --> should be AUD
Thanks Eran! You are right, I have updated the article, thanks for letting me know.
Nice post but the margins are wrong. No attention paid to the minority interest. Cut all of your margins in half and then some for the parent reinvesmtent. parent attributable EBIT margins would be 11-12% give or take
This is not true