Arranging hands-on uni education is not only nurturing but by alendar


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									Navitas Limited                                                    NVT                              Wednesday 11 November 2009
Arranging hands-on uni education is not only nurturing but profitable and growing fast
Recommendation: Accumulate for yield and growth, Buy on any weakness
Investment Rationale                                                                 Snapshot
NVT is an industry leader in providing pre-university and university pathway         Last Price                    $4.05
programs, chiefly to overseas students from Asia but also increasingly to non-       Market Cap.                   $1,387 million
English speaking students in the UK, Canada and Singapore. Since inception
in 1994, student numbers have increased at a compound annual rate of 25%,            52 Week High                  $4.10
to over 15,000. Since listing in 2004, NVT has expanded rapidly and profitably.      52 Week Low                   $2.01
The 2009 Annual Report notes that “as a leading provider of tertiary and             Sector                        Education Services
support services for international students for 15 years, Navitas operates all
international student programs to the highest standard, with a focus on              Investment Fundamentals
support, integration and academic outcomes. The Company does not                     Year-end Jun              FY08A      FY09A      FY10E        FY11E
anticipate any significant impact on its operational or financial position arising
from recent issues relating to international students primarily studying skills      NPAT ($m)                   37.4      49.2            58.6    67.0
VET [Vocational Education and Training] programs in Australia.” NVT has long-        EPS (c)                     10.8      14.3            17.2    19.6
term contracts with some 17 universities / colleges where its own staff partner      EPS Growth (%)              16.1      32.4            20.3    14.0
on campus in providing hands-on learning for first-year overseas students in
                                                                                     PE Ratio (x)                37.5      28.3            23.5    21.2
smaller classes on the same curricula, often using university staff, as precursor
to those students feeding directly into the second year courses. Other English       DPS (c)                     10.9      14.3            16.9    19.3
language, migrant and Government programs are provided here and overseas.            Franking (%)                 100       100            100      100
Capital requirements are fairly modest and cash flow is very strong, with $42m       Dividend Yield (%)            2.7      3.5             4.2     4.8
cash in June supported by up-front course payments. A good reputation with           Source: Intersuisse estimates
agents and past students and strong partnerships with universities constitute
substantial barriers to entry. The quality business and its underlying growth        Price Chart
prospects warrant a premium P/E. ROE of 24% in 2006 grew to 50% in FY09.              4.50

Education is the second largest industry in the world after healthcare, with
annual global expenditure over US$3 trillion. Quotes in July 2009 from the
heads of UNESCO and OECD indicate an additional 51m new tertiary students             3.50
since 2000 and three million enrolled outside their country. A Barack Obama
quote is “Education and innovation will be the currency of the 21st century.”         3.00

   NVT’s 11-year compound average growth rate in University Programs                  2.00

   First Semester enrolments is an impressive 25%. Equivalent Full Time               1.50
   Study Units grew 24% in the June quarter and are expected to grow at                  Nov-08      Feb-09      May-09           Aug-09

   above 20% in the September quarter.
   Discussions are underway for new colleges in Australia, UK, Canada and            Business Description
   USA. Average fee increases will be around 5% across the board.                    Navitas Limited (NVT) is a diversified global education
                                                                                     provider that offers an extensive range of educational
Impact                                                                               services for students and professionals including
   Return on capital and cash flow generation are exceptional, with cash flow        university programs, language training, workforce
   per share well above EPS due to negative working capital needs.                   education and student recruitment.
   The large untapped market offshore and still considerable potential in            Navitas is a significant provider of pre-university and
   Australia should underwrite ~15% EPS growth for the medium term.                  university pathway programs for domestic and
   Start-up costs of new programs and expansion partially mask underlying            overseas students, offered on a full-fee paying basis
   growth, reducing FY09 NPAT by almost 8%. In FY09, deferred revenue                in conjunction with associated universities in a
   rose from $103m to $133m, on receipts from customers rising from                  predominantly on-campus model. It offers university
   $360m to $503m (revenues up from $345m to $471m). Operating cash                  programs from colleges in Australia, the United
   flow was $104m (FY08 $79m). Capex was slightly down at $24m ($26m),               Kingdom, Canada, Singapore, Sri Lanka and Africa.
   not hindering NVT’s ability to pay out almost all earnings as dividends           Language training includes migrant education,
   despite (and helped by!) its strong growth profile.                               delivery of Government programs and courses for
   We see NVT’s business as quite different from the few training operators          provision of English as a second language. Navitas
   in Australia that have recently failed. We look to government and this key        workforce programs include delivery of professional
   sector to enforce standards that ensure quality outcomes for all students         development and corporate training.
   and sustainable sector growth. We share the positive views of consensus           Navitas also offers student recruitment services in
   analysts. We note the current high P/E as the market has recognised the           India and China for universities and other educational
   attractiveness of NVT’s business model following its FY09 report.                 institutions in Australia, Canada, the United States
                                                                                     and the United Kingdom.
Recommendation                                                                       See the website
We are attracted to the business model and strong growth prospects. NVT is
an Accumulate for yield and growth. Transparency, familiarity and track record
should build, making it a Buy on any weakness.                                       Analyst: Peter Russell

             Page 1 - Intersuisse - Wednesday 11 November 2009 - (See Page 2 for Disclaimer and Disclosures)
Navitas Limited                                                       NVT                           Wednesday 11 November 2009

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Prepared by Peter Russell

 INTERSUISSE LIMITED ABN 14 002 918 247, AFSL 246827                      Market Participant of the ASX Group
 Melbourne Office:                                                        Sydney Office:
 Level 37, 530 Collins Street,                                            Level 7, 5 Elizabeth Street,
 Melbourne, Vic, Australia 3000                                           Sydney, NSW, Australia 2000
 Telephone:                    (+613) 9629 8288                           Telephone:              (+612) 9233 2100
 Facsimile:                    (+613) 9629 8882                           Facsimile:              (+612) 9233 2117
 Email:                                Email:        

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