Evolve Education Group Ltd

EVO Details

Evolve Education Group Ltd (ASX: EVO)  is one of the top players in providing early childhood education in New Zealand and Australia. As of 3 August 2021, the market capitalisation of the company stood at ~A$117.26 million.

FY20 Results Highlights

Change in Balance Sheet Date: The company has changed its balance sheet date to 31 December as compared to 31 March earlier during CY20, hence, its audited results for FY20 include the performance for the 9 months from 1 April 2020 to 31 December 2020.

Generated a Revenue of $102.6 million in FY 31 December 2020: The company has generated revenue of $102.6 million in FY 31 December 2020 (i.e., for the 9 months ended 31 December 2020) compared to the revenue of $140.6 million achieved during the 12 months ended 31 March 2020.

Improved Profitability: The company has reported an improvement in its underlying EBITDA (pre-IFRS 16) during the period to $15.7 million from $8.2 million in FY 31 March 2020. As a result, the company reported a net profit after tax of $7.6 million during the period compared to the net loss of $13.30 million reported in FY 31 March 2020.

Thus, the company despite disruptions caused by the pandemic, managed to deliver encouraging results on the back of operating improvements and support extended to early childhood education by the New Zealand and Australian governments.

Financial Snapshot (Source: Company Reports)

Resignation of its New Zealand COO

As per the press release dated 2 August 2021, the company  announced the resignation of its New Zealand Chief Operating Officer (COO) – Craig Presland, and acceptance of the same with immediate effect by the board.  The group’s managing director – Chris Scott and the group’s chief financial officer – Edmund Mah will look after the New Zealand operations  till the company finds a replacement for the COO.

Trading Update

As per the press release dated 8 June 2021, the company updated that its Australian operations continue to post a very strong performance and the occupancy in the southern states and Queensland stood at 87.8% and over 80%, respectively for the week ending 23 May 2021. However, the occupancy in New Zealand stood at around 70% for the week ending 23 May 2021.

Meanwhile, EVO has settled all centre acquisitions that it has announced on 5 March 2021. Currently, EVO has 115 early education centres in New Zealand and 20 in Australia.

Key Risks

The operations of the company are exposed to various financial risks that include market risk as well as credit and liquidity risks. Besides, it is susceptible to the health and safety risks of children.

Outlook

The company has a healthy liquidity position with cash on hand of around NZ$59  million. Resultantly, it is mulling at further acquisitions opportunities in Australia following the completion of the raising of capital at the end of March 2021. Besides, it plans to start paying quarterly dividends from September 2021 for FY20.

EVO continues to focus on material cost savings through streamlining centre-based and support office costs. Meanwhile, it has guided achieving underlying EBITDA between NZ$16 million and NZ$18.5 million in FY21 and between NZ$23 million and NZ$25.0 million in FY22.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock recommendation

We have applied Price/Earnings Per Share based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to Price/Earnings Per Share Multiple (NTM) (Peer Average) considering sustained robust performance of its Australian operations, rebound in the net earnings in FY20, business growth strategies, and decent balance sheet with a healthy liquidity position that will enable the company to tap further acquisitions opportunities. The stock of the company has made a 52-week low and high of $0.688 and $1.480, respectively.

Considering the aforementioned factors, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.730 per share, down by 0.681% on 4^th August 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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