Navitas Limited

Navitas Got Revised Non-Binding Proposal: Navitas Limited (ASX: NVT) had recently made an announcement that it had got the revised indicative, preliminary, non-binding as well as conditional proposal which focuses on the acquisition of 100% of the Navitas shares which are outstanding involving a higher offer price amounting to $5.825 cash per NVT share. This proposal was received from BGH Consortium. The company had earlier posted their results for FY 2018 in which it stated that its EBITDA margin witnessed the negative impacts because of the performance with regards to C&I (Careers and Industry) division as well as because of closed colleges. The company’s EBITDA margin stood at 15.3% while in FY 2017 it was 16.3%.

 
NVT’s KPIs (Source: Company Reports)

Additionally, in FY2021, there are expectations for EBITDA amounting to $200 million and it would be supported by its existing business. Among the existing business, the company would largely be supported by the mature UP colleges. However, the company stated that the company’s EBITDA would also be aided by new UP Colleges.

However, in FY 2023, the company has plans to surpass EBITDA amounting to $250 million.

Stock Recommendation: On the daily chart of Navitas Limited, Relative Strength Index or RSI has been applied and default were used for the purposes. After carefully observing, it was noticed that the 14-day RSI has reached the overbought region. This signifies that soon the stock might witness a downward momentum.   

However, the company’s margins like operating margin and net margin are lower than the industry median which could be a matter of concern. In FY 2018, Navitas Limited had operating margin and net margin of 0.3% and -5.1% as compared to industry average of 42.3% and 30.2%, respectively. Meanwhile,the stock has generated a positive YTD return of 13.54% and is currently trading around its 52-week high. Although there are numerous positive factors that would ensure better value to shareholders, we presume that at the current level, the price has discounted all the positive developments. In the near term, the upward rally in the stock would exhaust and the stock would correct. We, therefore, recommend a “Hold” rating on the stock at the current market price of $5.620 as the revised proposal looks to be a favourable one given the offer price of $5.825.
 

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