I know KPG is applying AI where possible. As an insurgent they embrace it where possible. Its important they stay on top as developments are really fast. Lets wait for the earnings, probably next week, to see what Brett says.
Do you think Brett Kelly’s shift from external AI joint ventures to building internal proprietary software is a sign that he’s realized the "moat" in accounting isn't just about the technology itself, but about controlling the exact way AI interacts with KPG’s unique owner-manager IP?
I’ve subscribed and would be happy to support each other. :)
“Let your plans be dark and impenetrable as night, and when you move, fall like a thun-
derbolt.
From the shareholders letter: Kelly believes the AI revolution is different from the Dot Com Boom and this quote represents their current view on AI..
To me the moat first of all is in trust and high NPS so customer churn is low. Then its about staying ahead in software and AI so there really isnt a reason for a customer to leave.
Love this perspective, especially how you're tracking the AI impact on KPG as a long-term partner. The automation of routine tasks is just the initial phase; with the advancement in LLM capabilities, we're likely to see disruption move quickly into more complex analytical and advisory functions sonner than many projections anticipate.
Its a common thing for CEOs to do. Actually its a kind of sign that they expect the stock price will do well and dont want to sell yet. Brett always mentioned he wants to reduce his stake towards around 35%. Dont think the current drop has anything to do with a margin call. Cbiz is down as well. Its just AI fear which is imho an overreaction at the moment.
This is exactly what I was thinking, but I got to say, unless the liquidation criteria are business related and not stock related. It’s very irresponsible move.
Thanks for the great post. Did you have a chance to talk to Brett specifically about this topic (impact of AI on kpx)? I'd be very interested in his statement. THX!
KPG launched an intelligence research tool on their website. Its a fun tool. I asked whether AI is a risk or an opportunity for KPG:
Kelly Partners Group (KPG) views Artificial Intelligence (AI) and machine learning as a significant benefit and opportunity rather than a risk. The company believes these technologies will make a valuable contribution to the accounting profession, particularly by automating routine tasks.
This automation is expected to free up chartered accountants from work that is "below the level of training," allowing them to focus on higher-value advisory services. KPG's strategy involves harnessing technology to better deliver advice and insights to private business owners with complex structures, who are expected to continue valuing quality advice.
KPG actively "overinvests in the future," including in AI, which is seen as a "massive, massive advantage" over competitors who may underinvest. While KPG explored joint ventures for AI development, it decided to pursue its own software development and internal initiatives, being cautious of generic AI applications that lack enduring value or are easily duplicated. The company's leadership has been consistently positive about AI's impact on the profession, recognizing its potential for significant efficiency gains.
While AI is expected to bring substantial efficiency improvements and address the supply-demand imbalance for accountants, KPG does not primarily anticipate it to translate into higher organic growth. Instead, the focus is on enhancing operational efficiency and freeing up capacity for more strategic work. KPG warns that firms failing to reinvest in technology and adapt to the future risk severe disruption, underscoring its belief that AI is a risk only to those who remain stagnant, not to proactive firms like itself.
Its based on their own plan to increase margins and hence NPATA to shareholders, with a target of 100% cash conversion. KPG also wants their NPATA to shareholders to get to 10% of their total revenue.
How did you get your FCF growth rate that high? The last 5 year FCF/owners earning growth was 13.9% according to the HY presentation. Do you expect it to massively increase from historical soon?
I know KPG is applying AI where possible. As an insurgent they embrace it where possible. Its important they stay on top as developments are really fast. Lets wait for the earnings, probably next week, to see what Brett says.
Do you think Brett Kelly’s shift from external AI joint ventures to building internal proprietary software is a sign that he’s realized the "moat" in accounting isn't just about the technology itself, but about controlling the exact way AI interacts with KPG’s unique owner-manager IP?
I’ve subscribed and would be happy to support each other. :)
Jorrit
“Let your plans be dark and impenetrable as night, and when you move, fall like a thun-
derbolt.
From the shareholders letter: Kelly believes the AI revolution is different from the Dot Com Boom and this quote represents their current view on AI..
To me the moat first of all is in trust and high NPS so customer churn is low. Then its about staying ahead in software and AI so there really isnt a reason for a customer to leave.
Love this perspective, especially how you're tracking the AI impact on KPG as a long-term partner. The automation of routine tasks is just the initial phase; with the advancement in LLM capabilities, we're likely to see disruption move quickly into more complex analytical and advisory functions sonner than many projections anticipate.
What do you think on Brett taking loan against 7 million shares? maybe the sell off is margin call driven?
Its a common thing for CEOs to do. Actually its a kind of sign that they expect the stock price will do well and dont want to sell yet. Brett always mentioned he wants to reduce his stake towards around 35%. Dont think the current drop has anything to do with a margin call. Cbiz is down as well. Its just AI fear which is imho an overreaction at the moment.
This is exactly what I was thinking, but I got to say, unless the liquidation criteria are business related and not stock related. It’s very irresponsible move.
Thanks for the great post. Did you have a chance to talk to Brett specifically about this topic (impact of AI on kpx)? I'd be very interested in his statement. THX!
Kelly talked a lot about it:
KPG launched an intelligence research tool on their website. Its a fun tool. I asked whether AI is a risk or an opportunity for KPG:
Kelly Partners Group (KPG) views Artificial Intelligence (AI) and machine learning as a significant benefit and opportunity rather than a risk. The company believes these technologies will make a valuable contribution to the accounting profession, particularly by automating routine tasks.
This automation is expected to free up chartered accountants from work that is "below the level of training," allowing them to focus on higher-value advisory services. KPG's strategy involves harnessing technology to better deliver advice and insights to private business owners with complex structures, who are expected to continue valuing quality advice.
KPG actively "overinvests in the future," including in AI, which is seen as a "massive, massive advantage" over competitors who may underinvest. While KPG explored joint ventures for AI development, it decided to pursue its own software development and internal initiatives, being cautious of generic AI applications that lack enduring value or are easily duplicated. The company's leadership has been consistently positive about AI's impact on the profession, recognizing its potential for significant efficiency gains.
While AI is expected to bring substantial efficiency improvements and address the supply-demand imbalance for accountants, KPG does not primarily anticipate it to translate into higher organic growth. Instead, the focus is on enhancing operational efficiency and freeing up capacity for more strategic work. KPG warns that firms failing to reinvest in technology and adapt to the future risk severe disruption, underscoring its belief that AI is a risk only to those who remain stagnant, not to proactive firms like itself.
Its based on their own plan to increase margins and hence NPATA to shareholders, with a target of 100% cash conversion. KPG also wants their NPATA to shareholders to get to 10% of their total revenue.
How did you get your FCF growth rate that high? The last 5 year FCF/owners earning growth was 13.9% according to the HY presentation. Do you expect it to massively increase from historical soon?
And please be aware that I have used a discount rate of 10% while KPGs true WACC is 8.8%.