Enrolment trends a good sign for education group
The stock had underperformed the overall market for two years and is still 20 per cent off its peak price of $6 in 2010.
Navitas earns its money by writing contracts with universities to supply supplementary education to fee-paying students.
The idea is for the students to transition from Navitas to the university proper in year two of their study.
Until 2010 Navitas was a high-growth business with overseas students flocking to Australia for a tertiary education. In the process the company spread its business offshore to the US and UK.
Most analysts currently have Navitas on a sell recommendation because the company trades on an eye-popping 22 times 2013
earnings.
The November update though was a major turning point with Australian enrolments, which still account for about 50 per cent of the business, improving.
The company also said forward enrolments for the first semester in 2013 looked positive.
The profit results for the current half will not inspire but if the Australian enrolment trends follow through for the big first semester analysts may find they are behind the curve and need to upgrade earnings for 2013 and 2014 by 5 per cent or more. This could see the stock jump over $5.
Vision Eye Institute
I HAVE written about ophthalmology group Vision several times this year in the belief that it looked cheap but needed to raise equity to pay down debt. The company recently announced a placement and a two-for-three non-renounceable rights issue to raise over $27 million. These funds will be used primarily to pay down debt.
The company recently forecast that it would earn EBITDA of $24 million to $25 million in 2013. If the company can hit these numbers it is currently trading on an EBITDA multiple of 5.5 times. This is on the cheap end of the scale for a medical business.
So do we buy the stock now? The heavy rights issue is open until the middle of January. Ideally, the stock would be weak into the end of this period as shareholders sell their existing shares to fund the rights at 34¢ . For the moment the buyers are out in force and the stock is trading at 49¢ a share. If between now and the end of the rights period the stock sinks into the low 40s it would create a perfect entry point. For existing shareholders they should not hesitate to take up the rights issue at 34¢ a share.
Capral
FOR the past three to four months we have talked a lot about a cyclical pick-up in housing stocks. One of the most leveraged players at the small end of the market is aluminium manufacturer Capral.
Hurting from a high dollar, a crippled housing market and cheap imports, Capral has seen its share price decline from a high of $30 a share in 1997 to just 12¢ recently. It will be a brave investor to take a punt on the company.
That said, the leverage to an upturn in the housing market may be pronounced and worth monitoring. Under the leadership of Phil Jobe the cost base of the company has been reduced dramatically over the past four years.
The company said earlier in the week that before one-off costs it would produce an EBITDA of $2.5 million to $4 million for the year ending December 2012. This was an upgrade on the previous forecast and was derived from a lower cost base and a slight upturn in activity in the last quarter.
Capral has capacity to produce about 80,000 tonnes of product from its Queensland plant but is only producing at about 45,000 tonnes. Given the relatively fixed cost base of the business, if it managed to lift production to 55,000 tonnes it could easily make $15 million EBITDA in 2013. With a market capitalisation of about $60 million and net cash of about $12 million this would mean it could be trading on an EBITDA of just over three times. Much of this optimism depends on further interest rate cuts to boost housing starts and the Australian dollar staying at the current level or even falling. If the winds blow in the right direction, a share price move up to 40¢ would not be out of the question.
matthewjkidman@gmail.com
The Age does not take responsibility for stock tips.
Frequently Asked Questions about this Article…
According to the article, Navitas jumped about 14% over the past month after a positive company update on November 20. The update said student enrolments — especially in Australia — improved in the third semester and forward enrolments for the first semester of 2013 looked positive, which sparked investor optimism.
The article explains Navitas earns revenue by contracting with universities to provide supplementary education to fee‑paying students, with the aim that students transition to the university in their second year. Enrolment trends matter because roughly 50% of Navitas’s business is in Australia, so improving Australian enrolments directly supports future revenue and earnings.
Most analysts had Navitas on a sell rating because the stock traded at about 22 times 2013 earnings and had underperformed the market for two years (it’s still around 20% below its 2010 peak of $6). The article says if the improved Australian enrolment trends continue, analysts may need to upgrade 2013 and 2014 earnings by 5% or more — a change that could push the stock back above $5.
The article notes the current half’s profit results were unlikely to inspire on their own, but if the positive Australian enrolment trends persist into the big first semester, analysts could be behind the curve and upgrade forecasts — creating upside for the stock. It frames this as a conditional opportunity tied to sustained enrolment improvements.
Vision announced a placement and a two‑for‑three non‑renounceable rights issue to raise over $27 million, primarily to pay down debt. The rights issue price is 34¢ a share, the stock was trading around 49¢ at the time of the article, and the rights offer was open until mid‑January.
The company forecast EBITDA of $24 million to $25 million in 2013. If it hits those numbers, the article says Vision was trading on an EBITDA multiple of about 5.5 times — described as on the cheap side for a medical business. The article also suggested an ideal entry point would be if the share price fell into the low 40¢s before the rights close.
The article describes Capral as highly leveraged to a housing upturn: it’s been hurt by a high Australian dollar, a weak housing market and cheap imports, pushing its share price down to about 12¢. Management has cut the cost base and the company upgraded guidance to an EBITDA of $2.5m–$4m for the year ending December 2012 (before one‑offs). If production rises from about 45,000 tonnes to 55,000 tonnes at its Queensland plant, Capral could potentially generate roughly $15m EBITDA in 2013, which — given a market cap of about $60m and net cash ~$12m — would imply an EBITDA multiple just over three. That upside depends on interest rate cuts, higher housing activity and a stable or lower Australian dollar.
The article suggests watching the specific catalysts it highlights: enrolment trends for Navitas, the outcome and price action around Vision’s placement/rights issue (and taking up rights if you’re an existing shareholder), and housing‑market and production indicators for Capral. In each case the article frames opportunity as conditional: continued enrolment strength could change Navitas’s outlook; Vision’s balance‑sheet repair hinges on the capital raise; and Capral’s recovery depends on housing demand, interest rates and the AUD. These are the company‑specific signals the article says investors should monitor.
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