Navitas Limited reports profit fall – Are the shares ex-growth?

What: Leading education business Navitas Limited (ASX: NVT) has this morning reported an uninspiring set of full year results and the outlook for the current financial year isn’t much better.

The Results: While the statutory profit growth was eye catching at 25.4%, the adjusted result was muted.

Here are the key numbers investors need to know –

  • Operating revenue increased $30.3 million to $1 billion with the SAE division (a global media technology training institute) responsible for the majority of the revenue growth
  • Underlying earnings before interest, tax and amortisation (EBITA) fell around $2 million to $133.8 million
  • Underlying net profit after tax (NPAT) attributable to shareholders slipped by $1.3 million to $90.8 million
  • A final, fully franked dividend of 9.9 cents per share (cps) has been declared. The shares will trade ex-dividend on August 31, with payment scheduled for September 15
  • Coupled with an interim dividend of 9.6 cps, shareholders will have received fully franked dividends totalling 19.5 cps in respect of financial year 2016
  • Net debt increased year on year from $36 million to $56 million

What Now: It will be interesting to see how the share price of Navitas reacts today considering the stock is up around 43% over the past year.

In its outlook statement for 2017, the following guidance was provided –

  • Solid underlying organic revenue growth expected across all businesses
  • Final financial impact of closing University Partnerships colleges in H1 17
  • FY17 EBITDA result expected to remain broadly in line with FY16

Based on Monday’s closing price of $5.89, Navitas is trading on a price-to-earnings (PE) multiple and yield of 24.5x and 3.3% respectively.

Those numbers suggest that the market still has Navitas priced as a growth stock – that’s not an unreasonable assumption based on the long term sectoral tailwind which education services should enjoy.

However, for companies trading on high PE multiples such as Navitas and other growth stocks like Domino’s Pizza Enterprises Ltd (ASX: DMP) and Cochlear Limited (ASX: COH) failing to meet investor expectations (irrespective of achieving high growth) is likely to lead the market to be harsh in its re-assessment of fair value.

With many companies trading on very high PEs, investors will need to be particularly vigilant this reporting season.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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