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A stock picker’s guide to Navitas in 2014

Navitas (ASX: NVT) is leading global education provider offering an extensive range of educational and training services for students and professionals across Australia and the world. It has a market capitalisation of $2.7 billion and annual revenue of $795 million.

Navitas has three operating divisions:

1. University programs: Navitas has 32 pathway colleges and managed campuses across Australia, the U.K., U.S., Canada, Singapore, Kenya, New Zealand and Sri Lanka. The pathway program focuses on providing pre and first year university courses to international students who do not qualify for direct entry into universities due to either language or academic record.

2. SAE: This division delivers vocational and higher education qualifications in audio, film and multimedia via 58 colleges in Australasia, U.S., Europe and the Middle East.

3. Professional and English programs: This part of the company focuses on vocational training, higher education and placement services in the areas of key demand across Australia as well as providing English as a second language classes for international students.

Navitas has had an impressive financial history, growing net profit from $29 million in 2005 to $75 million in 2013. Dividends per share have also grown at an impressive 10.4% annually. The company has a strong balance sheet with limited debt of 0.82x EBITDA

In respect of the FY14 interim result, Navitas saw net profit increase by 3% to $36.1 million and revenue up 19% to $421.9 million. It experienced strong revenue growth across all segments. The largest division, University Programs, saw revenue increase an impressive 20% to $243 million following enrolment growth in all key regions and significant fee growth. The SAE and Professional and English programs experienced revenue growth of 22% and 15% respectively.

The outlook looks extremely positive for Navitas. It has reaffirmed EBITDA guidance at $138 to $148 million up from $130 million in FY13. University enrolments are growing strongly with all key regions showing good growth. Australian new student enrolments are up more than 30% in respect of semester 3 2013. The company has stated that the surge in university enrolments will result in solid growth in the second half of 2014 with revenue set to exceed that of the first half.

The SAE division is also forecast to see strong revenue growth and a stronger second half in FY14. The Professional and English programs division is also expected to experience full year growth.

Foolish takeaway

Navatis is set to benefit from the increasing demand for education services, particularly from Asia and other developing nations. Enrolment growth is forecast to continue to improve. Further, the company expects to reap the benefits of investments from FY2015 onwards.

Navitas is a quality growth stock to hold for the long term. However, the stock currently appears expensive, trading on a PE of 36. Investors should wait for a pullback before taking the opportunity to invest.

 

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Motley Fool contributor Bradley Murphy does not own shares in any companies mentioned.

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