After you finish high school, what's the point of further education?
You might say 'to cultivate a special set of skills', 'self-improvement', 'to gain knowledge', 'for personal interest', or 'to gain employment.' Overwhelmingly, I think you might expect it to be the latter reason, particularly among the younger generation and with unemployment on the rise.
Want to be a nurse? Better study nursing. Trying to get a specific role in IT, healthcare, business, consulting, sales? There are a bunch of post-grad courses and certificates you can pick up to help your prospects, and that's where companies like Navitas Limited (ASX: NVT), Intueri Education Group Ltd (ASX: IQE) and Australian Careers Network Ltd (ASX: ACO) come in.
All promise enhanced job-seeking prospects for graduates which, presumably, are a powerful incentive to undertake courses offered. But what happens when the job outcomes fail to match up with students' expectations when they undertake the course?
It wouldn't be surprising to see a drop in student numbers and thus, revenues from courses. However, the cost of providing courses will remain relatively fixed which could have a punishing impact on profit margins. This is precisely what I expect could happen to Australian education providers over the next few years as tougher economic times set in. Vocation Ltd (ASX: VET) is a well-known case that's already come to grief, but I think there could be shocks in store for other education providers.
The government is already slashing as much 'fat' as possible from its budget – which could mean fewer nurses, teachers and so on. Private companies are going through much the same process with 'right-sizing' and 'headcount rationalisation' also having a punishing effect on the number of positions available.
I don't believe it is a coincidence that SEEK Learning – owned by SEEK Limited (ASX: SEK) – and Intueri recently missed earnings expectations, while Navitas forecast a flat 2016 despite growth in 2015. Factor in possible government changes to the way degrees are funded – putting more of the cost on students – and I think education providers face headwinds in the year ahead.
Accordingly, I do not believe they are a buy even after recent weakness in their prices.
