Vocation (ASX: VET) is a vocational education and training company scheduled to make its ASX debut in early December.
The listed business will be an amalgamation of three well-established private companies. Those businesses are Avana Group, a Sydney-based training services and workplace solutions consultancy; the Customer Service Institute of Australia (CSIA), which provides professional customer service and sales staff training across multiple industries; and the BAWM Group, which provides vocational blue-collar training and other educational services.
According to the prospectus, the company will be priced at 15.3 times forecast 2014 earnings per share. Vocation forecasts a dividend yield of approximately 1.7% part-based on financial-year 2014's forecast statutory net profit after tax and amortization of $9.1 million and forecast revenues of $105.1 million.
The group expects growth in vocational training demand thanks to the themes of technological change, skills shortages and increased government funding and support. Notably, Vocation would have generated approximately 80% of its hypothetical financial year 2013 revenues from Commonwealth, state and territory government funding schemes. Public bodies will commonly subsidise vocational training to help meet skills shortages and increase productivity in their local economies. Logic also suggests governments will support vocational training as Australia gradually trends towards a high-skilled labour market with low-skilled jobs shifted offshore.
The company is competing with the likes of industry leader Navitas, (ASX: NVT), which provides government-funded vocational training as part of a wider educational services business. Its shares are currently around two and a half times their 2004 floatation value.
In all Vocation is seeking to raise $253.5 million through the sale of 134 million shares at $1.89 each. A further 66 million shares will remain with the founders and Vocation employees resulting in an expected market cap at offer price of $378 million. The closing date for subscriptions is December 4.
Foolish takeaway
Intrepid investors may consider the business an opportunity. However, risks remain over the potential for loss of key public funding contracts or a reduction in overall government funding for services provided by Vocation businesses. The merger of three separate businesses will also carry initial integration and operational risks to negotiate.
