Mindchamps Preschool Ltd (SGX: CNE) continued its impressive streak of growth in 2018 as revenue and net profit increased by 62% and 33%, respectively. The company’s total revenue growth between 2014 and 2017 also ranks the company among the top 50 fastest-growing companies in Singapore.
In addition to these impressive statistics, there were some signs that the company still has the potential to continue growing. Here are three important takeaways from its 2018 full-year earnings results.
Acquisitions driving growth
Minichamps has been actively using its cash to make acquisitions to drive growth. In 2018, the number of company-owned and -operated centres (COCO centres) increased to 18 from 10 in 2017. As a result, the total number of students in its COCO centres increased by 65%.
The increase in student enrollment due to the acquisitions of these new centres was the largest contributor to the fast growth pace in 2018.
While the recent acquisitions have resulted in an increase in the company’s borrowings, the company still remains in a net cash position of S$14.5 million. As such, it is still in a position to continue to pursue a few more acquisitions over the next few years.
Diversifying its income stream
Besides driving growth, the acquisition of four preschool centres in Australia has boosted the company’s revenue stream outside of Singapore. Its operations in Australia now contribute 32% of the company’s top line. The chart below shows the change in Mindchamps’ revenue mix in 2018.
Source: Mindchamps Analysts Presentation 2018
The company is also looking to expand into Malaysia, with recently announced plans to launch 20 preschools there and in Beijing.
Cash flow from operations can be used for growth
Importantly, Mindchamps’ operations are also cash-generating. The company generated S$7.1 million from its operating activities this year, up from S$5.5 million in 2017.
As Mindchamps is aggressively expanding its business, this cash flow generated from its operations can eventually be plowed back into the company to invest in new preschool centres to continue driving growth.
The Foolish take
2018 was another year of growth for Mindchamps, driven largely by major acquisitions made in Australia. The company remains in strong financial health and has the capacity to make even more acquisitions this year. However, acquisitions can drive growth only up to a certain point. Eventually, Mindchamps will run out of cash to fund major acquisitions and will need to rely on organic growth. Therefore, investors should also keep an eye on any updates on how its existing operations perform this year and whether the company can start to supplement that inorganic growth with organic growth.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.