Stocks’ Details
 

IDP Education Limited

Announcement of Share Purchase Plan: IDP Education Limited (ASX: IEL) is an education service provider which places international students into education institutions in Australia, UK, USA, Canada, New Zealand and Ireland. As on 14 April 2020, the market capitalization of the company stood at $4 billion. The company has recently invited eligible shareholders to apply for up to $30,000 of new fully paid ordinary shares under its Share Purchase Plan without incurring brokerage or other transaction costs.

During 1H20, the company witnessed an increase of 25% in revenue to $379 million and a growth of 42% in NPAT to $57.7 million. This growth was mainly due to growth in student placement and increasing trend of English Language Testing volume. The improvement in financial performance resulted in strong margins through operational efficiencies and a slower investment in overheads. 


1H20 Financial Highlights (Source: Company Reports)

Future Expectations: The breakout of COVID-19 has taken a toll on the global economy. The company is likely to have a material impact on its performance as many of its IELTS testing locations are suspended. However, it is taking pre-emptive measures to benefit from opportunities after this period. The company is sufficiently liquid and is focusing on preserving global talent.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method

EV/Sales Multiple Based Relative Valuation Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of IEL gave a negative return of 7.46% in the past 6 months and a negative return of 12.58% in the past one month. The stock is also trading close to its 52-weeks’ low level of $9.9. Travel restrictions and school closures in all destination markets is likely to materially affect the performance of the company. During 1H20, gross margin of the company stood at 66.9% as compared to the industry median of 67.5% and net margin of the company was 15.2% relative to the industry median of 17.2%. Considering the current trading levels, negative returns and uncertainty due to COVID-19, we have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at an indicative downside of single-digit (in percentage terms). Hence, we have a watch stance on the stock at the current market price of $14.070, down by 3.099% on 14 April 2020.

G8 Education Limited

Successful Completion of Placement and Institutional Entitlement Offer: G8 Education Limited (ASX: GEM) operates early education centres. The company has recently announced the successful completion of its institutional placement wherein it has raised a total of $227 million at $0.80 per new share. The company has also announced that Mitsubishi UFJ Financial Group, Inc. has ceased to be a substantial holder. During FY19, the company reported an increase of 7.5% in revenue to $922.2 million and organic earnings growth of 3% after investment in quality. This was driven by occupancy, fee growth and acquisitions. GEM has a resilient balance sheet with lower costs and longer tenor in debt structure.


FY19 Financial Highlights (Source: Company Reports)

What to Expect: The company is prioritizing to drive growth in Turnaround and Greenfield centres with a target of around 50 centres in Q1 CY20. GEM will continue to evaluate acquisition opportunities and will focus on driving cost efficiencies to support EBIT acceleration. The company has confirmed that its 2020 AGM will be held on 17 June 2020. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method

EV/Sales Multiple Based Relative Valuation Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of GEM is trading close to its 52-weeks’ low level of $0.437, proffering a decent opportunity for accumulation. During FY19, gross margin of the company stood at 92.6%, higher than the industry median of 64.7%. In the same time span, EBITDA margin of the company witnessed an improvement over the previous year and stood at 28.6%, up from 17.4% in FY18. Considering the trading levels, improvement in margins and positive outlook, we have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at an indicative target price with an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $1.050, down by 2.778% on 14 April 2020.

3P Learning Limited

Appointment of New CFO: 3P Learning Limited (ASX: 3PL) is involved in the development, sales and marketing of online educational programs to schools and parents of school-aged students. The market capitalisation of the company stood at $122.75 Mn as on 14^th April 2020. 3PL has recently appointed Dimitri Aroney as Chief Financial Officer. The sales execution issues in APAC in 2H FY19 have resulted in licence loss and have adversely impacted its H1-FY20 result. This resulted in a fall of 3%, 49% and 195% in revenue, EBITDA and NPAT during 1H FY20, respectively.

The company also witnessed a decline of 1% in global licences from 30 June 2019 due to the start of school year churn in the first half in the UK and the Americas. However, it witnessed a growth of 4% in licences in APAC. The company experienced growth in new business billings on current products and ARR in all regions.


Key Financials (Source: Company Reports)

Expected Growth in Revenue and EBITDA: 3PL anticipates growth in revenue and EBITDA for 2H FY20 as compared to 2H FY19 mainly due to new business billings on current products and growth in ARR in all regions, stronger products in the market and roll out of new products scheduled for this year.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 0.95x in 1H FY20, reflecting YoY growth of 6.5%. This reflects that the company has enhanced its position to pay its short-term obligations. During 1H FY20, the company witnessed a rise of 24% in cash position from $10.1 million to $12.5 million. We have valued the stock using EV/ EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Therefore, in light of the improved liquidity position and decent outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.875 per share, down by 0.568% on 14 April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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