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 (FY20 Ended 31 December 2020)

EBITDA Improved on Previous Year: 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.

Turnaround in NPAT: 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.   

Note: 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.

Income Statement (Source: Company Reports)

Recent Update:

• On 2 August 2021, the company announced the acceptance of the resignation of its New Zealand Chief Operating Officer (COO) Craig Presland with immediate effect post his decision to leave the company.

Outlook:

Going ahead, the performance of Australian centres, operating improvements and efficiencies achieved in New Zealand as well as the support of the governments of both countries for the early childhood education sector enable the company to deliver improved operating and financial performance. It successfully issued A$35 million senior secured medium-term notes in a wholesale offering which helped strengthen the company’s balance sheet, with proceeds being used to retire debt and fund Australian centre acquisitions.

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.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation:

The stock has been valued using Price/EPS multiple-based illustrative relative valuation and the target price reflects a rise of low double-digit (in % terms). A slight premium to Price/EPS Multiple (NTM) (Peer Average) has been applied considering better current ratio which could help the company moving forward. 

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.585  per share, down by 0.848% on 25^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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.