The Impact of Artificial Intelligence on Kelly Partners Group: Potential Disruption and Opportunity

Overblown Market Fears: A Great Chance for Investors to Become a KPG Long-term Partner.

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As most of you know I am a long-term partner in Kelly Partners Group. Given the recent stock declines linked to the impact of Artificial Intelligence (AI), I thought it’s time for an update.

The landscape of professional services is rapidly evolving. AI is reshaping industries, with accounting and taxation firms at the forefront of this transformation. Kelly Partners Group, an Australian-based network of owner-managed accounting practices, stands as a prime example of a company grappling with these changes. Founded in 2006, KPG operates a unique model that combines centralized support with local autonomy, serving mid-sized businesses and high-net-worth individuals across Australia, Hong Kong, and beyond. I have written multipe articles about KPG before.

AI’s Disruptive Force: Eroding Routine Revenue Streams

AI’s most immediate threat to firms like KPG lies in its ability to automate routine, repetitive tasks that form a significant portion of traditional accounting revenue. Specialists from academic and research institutions, such as those affiliated with the World Economic Forum and the U.S. Bureau of Labor Statistics, project that AI could handle 20-50% of such tasks by 2030, including data entry, basic compliance filings, reconciliations, and simple tax calculations. With the latest developments around AI and Claude this might even go a bit faster.

For KPG, whose network relies on volume-based services for small to medium enterprises (SMEs), this could translate to revenue erosion. Clerical roles like bookkeeping and payroll are among the most vulnerable, with projections indicating net job losses in these areas as clients increasingly adopt in-house AI tools or low-cost platforms.

Empirical studies underscore this shift. A 2025 report from the Thomson Reuters Institute found that AI adoption in audit firms led to a 4.3% increase in junior and mid-level positions, but this was offset by reductions in entry-level clerical work. In KPG’s context, where practices often handle multi-entity setups for private businesses, AI tools like generative models from Anthropic or OpenAI could commoditize basic compliance, potentially compressing margins on low-value services. If clients, many of whom are underserved and only access about 10% of potential accounting offerings, opt for AI-driven self-service, KPG might see a dip in billable hours for routine work.

But will AI really have a meaningful impact over the next five years? Regulatory bodies like the Australian Taxation Office (ATO) improving data matching and are shifting toward enforcement. These advancements could actually increase demand for professional guidance by emphasizing accurate reporting. However, if government AI tools reduce nuanced situations to simplistic checks, it might frustrate clients and drive more business to private firms for detailed handling.

Moreover, ethical and bias-related risks in AI add layers of complexity. Researchers highlight how AI systems can perpetuate human prejudices in audits or tax assessments, necessitating human oversight to mitigate issues under regulatory frameworks like those from the ATO. For KPG, slow adaptation could exacerbate these disruptions, especially amid broader market fears that have contributed to a 50% stock decline last year, mirroring sell-offs in peers like CBIZ.

Opportunities Arising: The Shift to High-Value Expert Services

Despite these challenges, AI specialists emphasize that the technology’s impact is not purely destructive. Rather, it catalyzes a pivot toward more lucrative, expert-driven services. Neutral forecasts from bodies like the Bureau of Labor Statistics predict 6% growth in accounting occupations by 2033, adding approximately 91,000 jobs, fueled by human-AI collaboration.

For KPG, this means routine revenue losses could be replaced, and surpassed, by expansions in strategic advisory, complex tax planning, risk management, and litigation support.

Data supports this optimism. Firms embracing AI report higher revenue per employee, thanks to productivity boosts that free professionals for high-margin work. AI enhances efficiency, reducing errors by up to 40% in financial statements and enabling real-time insights for clients. In KPG’s owner-managed model, where 9% of fees are reinvested into central IP and services, AI integration could streamline operations across its network, allowing practices to offer premium services like international tax strategies or advanced structuring for high-net-worth clients. More than ever, this is the time for Brett Kelly to show the flywheel is unique and creates a competitive advantage and show KPG is an insurgent.

The often-underestimated trust and accountability in client-accountant relationships further bolster this shift, AI can tackle grunt work but won’t replace these core elements. Centralizing AI functions might even improve bottom lines. Professional sentiment aligns: 68-71% of accountants are excited about AI, with 64% rejecting the notion that it will fully replace them. For KPG, targeting mid-sized firms ($2-10 million revenue), AI could unlock underserved needs, such as predictive analytics for risk or automated multi-entity reporting, potentially driving the company’s ambition to reach AUD 500 million in revenue and top-10 status in Australia. Recent acquisitions have already bolstered this trajectory, demonstrating resilience even as AI concerns loom.

KPG’s Strategic Positioning in an AI-Driven Future

KPG’s structure positions it well for adaptation. Unlike larger conglomerates, its decentralized yet supported network enables quick AI adoption at the practice level, potentially turning tools into efficiency enhancers rather than threats. Specialists stress that success hinges on balanced integration, using AI for decision support without over-reliance, to avoid opacity or biases.

While short-term volatility from AI fears may persist, KPG’s 2025 results confirmed my expectations of continued growth on revenue and NPATA to shareholders, suggesting underlying strength. I expect KPG will announce half year earnings next week. My estimates are a revenue of AUD 76.5M and NPATA to shareholders of AUD 5.8M. I also expect Kelly to announce a share buyback program because of the high undervaluation of the stock currently. If I use KPG’s own plan on NPATA for the next years and knowing cash conversion is close to 100%, then the DCF shows the current stock price is undervalued by 123.2%.

Back to the AI story and the current environment. Expanding regulations, such as those around superannuation taxes, personal services income provisions, trusts, fringe benefits, payday super, and anti-money laundering extensions to accountants, are making the field busier and countering AI automation by increasing complexity. On margins, dilutions often occur from acquiring lower-margin firms and front-loading investments in central resources to support future growth, addressing potential challenges in overseas expansion like replicating the model in markets such as the US. In my interview with Brett Kelly he mentioned he knows how to increase the margins from 15.5% towards 32.5% at a minimum.

In multi-entity environments common to KPG’s clients, AI’s shift from data entry to insightful analysis could boost profitability, as seen in studies where AI-adopting firms doubled profits and reduced working capital. However, laggards risk client loss to more tech-savvy competitors. KPG’s proactive reinvestment in IP indicates preparedness, but I am curious what Brett will say about their AI advancements in their earnings update. Also towards one of their most recent acquisitions , WrkPod, an outsourcing company. This is the type of company where I have doubt in the long-term whether it will be AI proof.

Conclusion: A Balanced Outlook for Sustained Growth

AI’s impact on Kelly Partners Group is dual-edged: it threatens routine revenue but amplifies opportunities in expert services, potentially leading to net growth. Unbiased expert analyses paint a picture of evolution rather than extinction, with human-led judgment and regulatory demands remaining essential amid automation.

For investors and stakeholders, KPG’s adaptability, evidenced by its growth strategy, resilient financials, and ability to leverage trends like enhanced enforcement, suggests a positive long-term trajectory, provided it embraces AI as a partner. As the sector matures, firms like KPG that navigate this balance could emerge stronger, turning technological disruption into a catalyst for innovation and expansion.

For those who aren’t a shareholder yet I think this is a great opportunity to have a look at the company as the stock price currently appears extremely undervalued. This isn’t investment adivce, it is a call to do your own due dilligence. Let me know your outcome!

Disclaimer

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