Navitas Ltd Falls 15% on Earnings Uncertainty

Navitas Limited [ASX:NVT] dropped 15% today, to $4.19 per share. The drop wiped off $22.8 million from the educational providers market cap.

Navitas now has a market cap of $1.52 billion and a price-to-earnings ratio of 16.

What happened to the Navitas share price?

Navitas announced that they could receive fewer contracts from 1 July 2017. In particular, they could see a drop-off for their Adult Migrant English Programs.

It will likely reduce earnings for Navitas’ Professional and English Programs Division. The company expect earnings before interest, tax, depreciation and amortisation (EBITDA) to fall to $12–15 million in FY18 and beyond.

It’s a decrease of more than 50% compared to FY16 figures.

What now for NVT?

It’s horrible news for Navitas’ shareholders. One of the company’s major earnings drivers has now decreased significantly. Once all factors have been considered, the company will assess the full impact. This information should be available to shareholders on 4 April.

Navitas CEO Rod Jones said:

The proposed reduction in contract regions is disappointing news as Navitas has been delivering this important program to a high standard since 1998.

However we will continue to focus on providing high quality outcomes to our clients in our remaining and new contract regions; and ensure any transition for clients is as smooth as possible.

If you’re looking to buy Navitas, you need to be sure that they can make up earnings in other ways. For example, they could increase earnings of an existing division. Or Navitas could create new services to capture more contracts.

How long it might take for Navitas to redeem the expected earnings loss is still an unknown.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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