Australia | Aug 05 2009
By Chris Shaw
Education and training services group Navitas ((NVT)) has delivered a strong full year profit of $49.2 million, the result representing a 32% increase over FY08 earnings and one that was above both broker estimates and guidance from management.
Macquarie notes the group’s University programs were the big driver of the result as that division’s contribution rose 33% from last year, while the English and Workforce divisions also posted solid gains and helped offset a weaker contribution from the Recruitment division.
In the broker’s view operating cash flows were a feature of the result as they were up 33% on the previous corresponding period, which has helped in boosting net cash on the balance sheet to $41.8 million as at the end of FY09, up from $5.8 million as at the end of FY08.
The positive trends in the group’s core businesses has led Bank of America Merrill Lynch to lift its forecasts for FY10 by around 10%, meaning it expects earnings growth for next year of better than 20%. Additional upside comes from further bolt-on acquisitions and more campus network initiatives, neither of which are in the broker’s numbers at present.
Looking forward RBS Australia remains positive as it points out student enrolment numbers are persistently strong, deferred revenues rose by 29% and management is registering some improvements with respect to group costs. As a result, while guidance from the company is for strong double-digit earnings growth in FY10, the broker is expecting an increase of 21%.
In earnings per share terms, RBS Australia’s revised forecasts are for 17.3c in FY10 and 20.1c in FY11, while Bank of America Merrill Lynch’s forecasts are similar at 17.6c and 20.6c respectively, compared with the 14.4c reported for FY09. The FNArena database shows consensus earnings per share of 18.1c and 20.5c respectively for FY10 and FY11.
While seeing group earnings as less sensitive to the global economic slowdown, RBS Australia does argue the stock is fully priced at current levels given on its numbers the shares are trading on a P/E (Price to Earnings) multiple of 16.7x. Deutsche Bank agrees and also retains its Hold recommendation despite lifting its target to $2.75 from $2.25, the broker noting while the result was excellent the share price already reflects that fact.
In contrast Bank of America Merrill Lynch’s revisions to earnings forecasts, in combination with a rolling foward of its valuation metrics, have pushed its price target up to $3.50 from $3.00. Adding in the almost 6% dividend yield and the broker sees a total return on the stock of about 25%, which justifies a Buy rating in its view.
UBS agrees as it sees the strong finish to FY09 as setting a good platform for further growth in coming years. Increases to its earnings forecasts of around 7% through to FY12 result in the broker’s price target increasing to $3.25 from $2.75 and post the revision the broker retains its Buy rating.
Overall the FNArena database shows the stock is rated as Buy three times and Hold twice, with an average price target of $3.12, up from $2.91 prior to the profit result. Shares in Navitas today are unchanged at $2.90 as at 11.00am, which compares to a trading range over the past year of $2.01 to $2.94.
