Evolve Education Group Limited

EVO Details

Evolve Education Group Limited (ASX: EVO) is a New Zealand-based company that provides early childhood education under brands such as Lollipops, Active Explorers, Learning Adventures, Little Earth Montessori, Little Lights, Little Wonders, and Pascals. In 2019, the company launched its expansion into Australia with the acquisition of 10 centres.

Result Performance – For the Financial Year Ended 31 December 2020 – (FY20)

The company changed its balance date from 31 March to 31 December during the calendar year 2020. Hence, the audited results for the financial year ended 31 December 2020 are for the nine months from 1 April 2020 to 31 December 2020.

EVO posted revenue of $102.6 million for  9 months to 31 December 2020 as against 12 months to 31 March 2020 revenue of $140.6 million. Revenue for the period was impacted by the COVID-19 related lockdowns which resulted in business disruptions. Underlying EBITDA for 9 months ended 31 December 2020 stood at $15.7 million against $8.2 million in 12 months ended 31 March 2020. The company reported a net profit for 9 months ended 31 December 2020 of $7.6 million against a net loss of $13.3 million for 12 months ended 31 December 2020.   

Key Data (Source: Company Reports)

Recent Updates

• As per the release dated 8 June 2021, the company provided that all centre acquisitions announced on 5 March 2021 have been settled. Now, it operates 115 early education centres in New Zealand and 20 in Australia. Further, acquisitions are being envisioned following the capital raise which was achieved at the end of March 2021. Currently, the company has cash on hand of ~NZ$48 million.

Key Risks:

The company is exposed to a variety of financial risks: market risk, credit risk, and liquidity risk. Further, it is exposed to foreign currency risk associated with the Australian dollar.

Outlook:

The company currently plans to commence quarterly dividend payments from September 2021 concerning FY20. In addition, the Australian operations of the company have been reporting a strong performance. For the week ending 23 May 2021, occupancy in the southern states was 87.8% and over 80% in Queensland. However, NZ operations have not experienced a rise in occupancy post COVID. For the week ending 23 May 2021, occupancy in NZ was ~70%. Meanwhile, the company expects to gain material cost savings via streamlining center-based and support office costs. Based on current NZ and Australian trading conditions, the company expects underlying EBITDA to be in the range of NZ$16 million-NZ$18.5 million in FY21 and NZ$23 million-NZ$25.0 million in FY22.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While remaining in a downtrend, the stock gave gap-up opening for the ongoing week but closed flat at $0.80. The technical indicator RSI with a reading around 27 and a flattish curve at the end, suggests weak to flattish momentum while the stock being in the oversold zone.

Going forward, the stock may have resistance around the 50% retracement level of $0.96 whereas support could be around $0.70.

Stock Recommendation:

The stock has witnessed an increase of ~9.89% in 9 months. It has made a 52-week low and high of $0.672 and $1.480, respectively.

Considering the aforesaid facts, we have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price  that reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer average P/E (NTM Trading multiple) considering a strong business model backed by organic and inorganic growth.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.800 per share on 29^th June 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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