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Why Soul Patts is a major shareholder of RedHill Education Ltd

I’ve found that one of the best ways to discover new, smaller, shares is to look at the holdings of some of the top-performing investment managers out there. It’s very hard to research every share on the ASX, so a business identified by an investment team could be an idea for our portfolios.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is one of oldest companies on the ASX. The company has consistently outperformed the ASX indices over long time periods and I imagine it will continue to do so over the coming years.

One of the investment conglomerate’s latest investments is in RedHill Education Ltd (ASX: RDH).

RedHill was founded in 2006 and listed on the ASX in 2010. The company operates a number of specialist businesses in the private tertiary education market in Australia.

The company recruits over 3,000 international students each year via its student agencies in Spain, Italy and France to study in Australia. The students are placed into more than 150 education providers in Australia.

In its half-year report for the six months to 31 December 2017 RedHill revealed that revenue increased by 44% to $25.95 million, earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 320% to $2.7 million and net profit after tax (NPAT) increased by 2,417% to $1.36 million.

The company’s cash position is also in very good shape. Cash from operating activities increased by 213% to $3.88 million and the ending cash was $9 million, a big increase from the $3.55 million ending balance a year before.

Foolish takeaway

Education is one of Australia’s largest exports and RedHill is capitalising on this trend excellently. It’s hard to say if this is a long-term growth area because there have been recent noises about how some education providers are losing their character and appeal. RedHill could be an exciting small cap stock if it can keep growing.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.