Navitas
Recommendation
The sharemarket has thrown its weight behind education provider Navitas. The 2011 downturn in student enrolments referred to in Friday Fishing: A Navitas education on 23 Mar 12 (No View – $3.42) has been judged to be temporary. There are now early signs of a recovery in enrolments and, while yet to flow through to profitability, the company’s share price has jumped 54% since last year’s exploratory review.
In the 2013 interim results, weakness from the more mature Australian business was offset by strong performances from its fresh-faced Canadian and Singaporean divisions. Start-up losses in the US were also substantially reduced. Overall, interim net profit was flat at $35m on revenues that grew 4% to $355m.
Elsewhere, Navitas’s acquisition of media training group SAE is yet to live up to expectations. While SAE’s interim earnings rose by 7%, its results do not yet justify the $294m acquisition price.
The company’s international expansion is consuming capital, so management recently flagged the 100% dividend payout ratio as unsustainable. Dividends will be held steady until the payout ratio reduces to around 80%. This implies that management is expecting significant profit growth in 2014.
A strong earnings recovery is now factored into the share price, which looks rather expensive on a prospective PER of 25. The recommendation is now more conclusive: AVOID.