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.
The Age does not take responsibility for stock tips.
Frequently Asked Questions about this Article…
Navitas rose about 14% over the past month after a November 20 update saying student enrolments — especially in Australia — improved in the third semester. Since around half of Navitas’s revenue comes from Australia, stronger enrolments and positive forward enrolments for the first semester of 2013 could lead analysts to upgrade 2013–2014 earnings estimates, which might push the stock back above $5 if trends continue.
Many analysts at the time had Navitas on a sell recommendation because the company traded at roughly 22 times forecast 2013 earnings. The stock also underperformed the market for two years and remained below its 2010 peak. That means while improving enrolment trends are encouraging, investors should weigh elevated valuation and mixed analyst views before buying.
Navitas signs contracts with universities to provide supplementary education to fee-paying students with the aim those students transition into the university in year two. Enrolments directly drive revenue because the company is paid to educate those students, so higher enrolments — particularly in Australia, which is about 50% of the business — typically boost near-term earnings.
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 was open until mid-January, priced at 34¢ per share. The company forecast EBITDA of $24–25 million for 2013 and was trading around a 5.5x EBITDA multiple, which some investors view as relatively cheap for a medical business.
The article suggested a cautious approach: buyers were active and the stock was trading at about 49¢, but existing shareholders were advised to take up the rights at 34¢. For prospective buyers, the article argued an ideal entry would be if the share price fell into the low 40s before the rights period ended.
Capral, an aluminium manufacturer, has been hurt by a strong Australian dollar, a weak housing market and cheap imports, pushing its shares down to around 12¢. Under improved housing activity and interest rate cuts, the company’s leverage could produce a pronounced upside: an increase in production toward capacity could lift EBITDA substantially, and the article suggested a share price up to about 40¢ wouldn’t be out of the question if conditions improve. The main risks remain housing demand, currency moves and import competition.
Capral’s Queensland plant has capacity for about 80,000 tonnes but was producing roughly 45,000 tonnes. The piece argued that raising production to about 55,000 tonnes could lift EBITDA to around $15 million in 2013, which — given a market cap near $60 million and net cash about $12 million — could put the company on an EBITDA multiple just over three times.
The article highlights that company-specific catalysts matter: Navitas’s enrolment improvement could force earnings upgrades, Vision’s equity raise aims to reduce debt and improve valuation, and Capral’s fortunes hinge on a housing recovery and currency moves. It also implies caution — analyst sell ratings, rights issues and cyclical exposure are real risks — so everyday investors should consider fundamentals, valuation multiples and specific corporate events before acting.
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