Why the Navitas Limited share price has fallen 7% today

The share price of Australia’s largest listed private education provider Navitas Limited (ASX:NVT) has taken a large hit today following the release of a disappointing half yearly earnings report for the period ending 31 December 2017.

At the time of writing, the company’s share price is down 7% to $4.87 after bouncing off an intra day low of $4.72.

Key highlights from today’s earnings report:

  • Revenues from ordinary activities were down 4.6% to $456.7 million.
  • EBITDA was down 12.9% to $66.7 million.
  • Group EBITDA margin fell from 16% to 14.6%.
  • Profit after tax from ordinary activities declined 53.6% to $24.7 million.
  • Earnings per share fell by 52% to 6.9 cents.
  • A fully franked interim dividend of 9.4 cents is to be paid on March 15.

What happened? 

Group revenue declined by 5% on the prior corresponding period due to the first half of FY17 including income from now closed colleges, more AMEP contract regions and a contribution from Edith Cowan College (ECC) before its conversion to a joint venture.

The closed colleges at Macquarie University and Curtin Sydney, the pre ECC conversion, and increased AMEP contract regions contributed $16 million in EBITDA for the first half of FY17. Excluding these items, group revenue for the first half of FY18 grew by 5% and recurring EBITDA increased by 10% from $60.6 million to $66.7 million.

Furthermore, the decline in net proft after tax was also impacted by a $7.5 million reduction in the carrying value of U.S. tax loss assets following last month’s passing of the U.S. Tax Cuts and Jobs Act and a one-off non-cash gain of $17.3 million on ECC’s conversion to a joint venture that occurred in the prior corresponding period.

From an operational perspective, Navitas continues to improve student outcomes across all of its divisions with pass rates reaching 84%, retention rates at 90% and progression rates at 94%. The company also saw underlying growth in University Partnerships enrolments rise by 8% for the period.

Prior to today’s earnings announcement, bullish sentiment surrounding Navitas had risen with the stock trading at a forward P/E of approximately 26, which in hindsight was a bit too high for a company whose earnings peaked in 2015.

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Motley Fool Contributor Tim Katavic has no financial interest in any company 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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