Education is one of Australia's largest industries, ranking in the top 10 for "gross value added" in the national accounts, and appears to be one in which we have a competitive advantage. Global demand for education is continuing to grow as the developing world chases the developed world. And demand is likely to remain strong even when economic conditions waiver, as reduced employment prospects or more competitive labour markets can drive interest in reskilling or upskilling.
Yet this is an industry that is significantly under-represented on the domestic sharemarket.
Navitas has acted as the industry beacon, rising from humble beginnings in Western Australia to operating on the global stage with a market capitalisation of $1.5 billion. That valuation positions it among the top 10 companies globally that are primarily in the education services sector, although there are also largish listed companies such as The Washington Post, which has acquired a number of businesses in Australia that include education among a broader portfolio.
A second listed entity, RedHill Education, tried to bolt together a number of educational businesses in the hope it could replicate the success of Navitas. But it languishes with a market capitalisation of $3.9 million, not far from the $3.2 million it held at June 30, after a disastrous listing in which it fell short of its prospectus revenue forecast for fiscal 2011 by a third and reported operating losses that have only just been stemmed in the September quarter.
RedHill appointed Glenn Elith as CEO in May, with a brief to salvage the business. Elith is a chartered accountant experienced in business turnarounds, including stints with Lion Nathan and George Weston Foods. He was CFO at organic retailer Macro Wholefoods Markets, which was sold to Woolworths in 2009. RedHill recently announced that under Elith it had achieved an EBITDA-positive and cash-flow result in the September quarter.
RedHill operates three Sydney-based colleges: the Academy of Information Technology, Greenwich College and the International School of Colour and Design. It also owns an independent student agency, Go Study Australia. But with the business historically generating about $14 million revenue (the original prospectus forecast $21.4 million in fiscal 2011), the second step for Elith is going to be to find a way to drive shareholder value through consolidation.
While universities dominate the higher education category (and even then there are 135 businesses competing), the broader educational industry is highly fragmented. There are 4910 registered training organisations (RTOs), according to training.gov.au. In addition, analyst IBIS World estimates there are more than 11,600 businesses offering language and other educational services (from business colleges to driving schools).
There is a third listed player that has kept a low profile and progressively acted on the consolidation theme, including the purchase of a 10 per cent stake in RedHill.
Academies Australasia Group is a tertiary education business that evolved out of a listed entity with more than 100 years of history. It operates nine colleges in Australia and one in Singapore, offering vocational, English and higher education. Its market capitalisation is $38 million and it is tightly held.
Last month it bought 40 per cent of the College of Sports and Fitness for $300,000 cash and shares, as well as 100 per cent of Melbourne-based language college Discover English for $190,000. It bought 51 per cent of Benchmark College for $5.5 million and paid $1.1 million for 75 per cent of Melbourne-based Academies Australasia Polytechnic, which offers tourism and hospitality qualifications, English courses and delivery of University of Ballarat programs, including MBAs.
Market conditions look ripe for continued consolidation, with weaker competitors placed under considerable pressure. The international market is still recovering from a post-2009 plunge that followed negative publicity regarding student safety in Australia, changes to Australia's migration policies and shifts in exchange rates.
Industry feedback regarding domestic students is that tight purse strings in government are resulting in a shakeout within the sector. And a move among some states to contestability between private operators and TAFEs offers new opportunities for those operators with scale and efficiency.
Martin Pretty is head of research at Investorfirst Securities.
Frequently Asked Questions about this Article…
How big is the Australian education sector and is demand still growing?
Education is one of Australia’s largest industries, ranking in the top 10 for gross value added in the national accounts. The article says global demand for education continues to grow as developing countries chase developed markets, and demand is likely to remain strong even in weak economic times because people turn to reskilling and upskilling.
Which education companies are listed on the Australian sharemarket and how large are they?
The article highlights a few listed players: Navitas (market capitalisation about $1.5 billion), RedHill Education (around $3.9 million), and Academies Australasia Group (about $38 million). It also notes larger diversified listed firms, such as The Washington Post, have acquired Australian businesses that include education among other assets.
Why is consolidation becoming a theme in the Australian education sector?
The sector is highly fragmented — there are thousands of providers — which creates opportunities for consolidation. The article points to weak competitors under pressure, recovering international markets, and policy moves (like contestability between private operators and TAFEs) that favour operators with scale and efficiency, making consolidation a logical strategy.
What progress has RedHill Education made under its new CEO, Glenn Elith?
RedHill appointed Glenn Elith in May with a brief to salvage the business. Elith, a chartered accountant with turnaround experience, led the business to an EBITDA‑positive and cash‑flow positive September quarter. Historically RedHill generated about $14 million in revenue versus a prospectus forecast of $21.4 million for fiscal 2011, and its market capitalisation remains small (about $3.9 million).
How is Academies Australasia Group growing through acquisitions?
Academies Australasia operates nine Australian colleges and one in Singapore and has been buying other education assets. Recent deals reported include: 40% of the College of Sports and Fitness for $300,000 (cash and shares); 100% of Discover English for $190,000; 51% of Benchmark College for $5.5 million; and 75% of Academies Australasia Polytechnic for $1.1 million.
How fragmented is the vocational and language education market in Australia?
The article cites training.gov.au showing 4,910 registered training organisations (RTOs). Analyst IBISWorld estimates there are more than 11,600 businesses offering language and other education services (from business colleges to driving schools), underscoring the sector’s high fragmentation.
What factors have affected the international student market and investor sentiment?
According to the article, the international market was hit by a post‑2009 plunge following negative publicity about student safety in Australia, changes to migration policies and shifts in exchange rates. Those factors, plus tighter government funding domestically, have created pressure in the sector and influenced investor sentiment.
What should everyday investors consider when looking at education stocks in Australia?
The article suggests investors look for scale and efficiency because consolidation is a key trend. Large, established players like Navitas sit in a strong position, while small listed firms (for example RedHill and Academies Australasia) may be pursuing turnaround or roll‑up strategies but carry execution and financial risk. Also factor in industry tailwinds (global demand, upskilling) and headwinds (regulatory changes, policy and reputation risks) and do your own due diligence before investing.
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