Navitas Share Price Misses the Mark

By 11am yesterday morning Navitas Ltd [ASX:NVT] stocks had fallen 7.8% from Monday’s close of $5.24. It finished the day at a 9.3% loss.

The bloodshed has rolled over to today, and at time of writing the stock is trading at $4.68.

Navitas is an education and learning solutions provider, operating throughout Australia, North America, Europe, Africa and Asia. The group has over 80,000 students across industries such as university pathway programs, professional and industry placement, English language, and health and social service education.

What happened to this education giant?

The group released a FY18 half year report yesterday posting a decrease in revenue by 5%, and a sharp fall of EBITDA (Earnings before interest, taxes, depreciation, and amortisation) by 13%. Navitas current market capital has fallen down to $1.67 billion.

Navitas cited a reduced contribution from Adult Migrant English Programs, which followed the loss of several contract regions in a re-tender process in FY17, as a reason for this fall in earnings.

Government changes to vocational education funding also contributed to a reduction in ACAP (Australian College of Applied Psychology) enrolments.

Rod Jones and David Buckingham, Navitas CEO and CFO respectively, hosted an investor and shareholder webcast yesterday to field questions regarding the report.

Fingers were pointed towards regulatory approval issues slow expansion in the US, with an estimation of being six to eight months behind schedule in terms of course approval.

A rise in competition was another explanation the pair offered.

Competitors were described as being slow to start, with uncertainty remaining about the good first half holding over to the end of FY18. However, the pair remained hesitant about moving away from the historic compounded annual growth rate for university partnerships of 14%, a positive sign of continuing growth prospects.

Looking forward

Future margins growth lies heavily on the US expansion and an increase of university partners, and to a smaller degree the ability to increase enrolment volumes and leverage pre-existing contracts.

The group expects price increases to be within those states in April’s strategic guidance of 2–3% pa, and believes performance to have been in line with strategic KPI’s which include retention rate increases, pass improvements, and new partnerships.

A highlight of the FY18 half-year report was the increase in student outcomes across all divisions. Pass rates were listed as 84%, retention rates 90% (both now meeting the 2020 KPI’s), and progression rates at 94%.

University partnership enrolments grew to 8%.

Four partnerships were renewed, with a fifth converted to a joint venture. Navitas lists three contracts due for renewal in the second half of FY18, with two in the UK, and one in New Zealand.

Come 1 March, Rod Jones will hand the reigns over to David Buckingham to become the group’s next CEO.

The group believes global demand for education and training to steadily increase, which will provide growth opportunities for Navitas in traditional and emerging fields in the future.

Jack Cameron

Junior Analyst, Money Morning

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