Australia | Jan 13 2010
By Chris Shaw
Educational program provider Navitas ((NVT)) has established a solid presence in the Australian market and has now made its first step in the US with an agreement to establish a pathway college on the campus of Western Kentucky University, one that should be in operation by September of this year.
In Credit Suisse’s view, the Western Kentucky deal is not so exciting in itself given the ranking and location of that school but it does at least offer a large enough student base to allow Navitas to establish a reasonably size campus in coming years. As well, CS expects the deal will be followed by further similar announcements in the shorter-term, which should be received more favourably by investors given the US market represents a new growth opportunity.
Citi agrees, taking the view the leading position in the provision of pathway programs Navitas has established leaves it well placed to sign similar agreement with other US schools over time. There is little immediate earnings impact from the announcement, although UBS has lifted its FY12 revenue growth forecasts for the University Program to 12% from 7.1%, which flows through to a 4.5% increase in the broker’s FY12 earnings per share (EPS) forecast.
UBS’s EPS forecasts stand at 18c in FY10, 20c in FY11 and 23c in FY12, while Credit Suisse sees Navitas delivering better than 20% EPS growth each year through to FY13, its EPS estimates standing at 17.8c in FY10, 21.3c in FY11 and 26.2c in FY12. Citi is forecasting 18c this year and 23c in FY11, while consensus EPS estimates according to the FNArena database stand at 17.9c for FY10 and 20.7c for FY11.
The database shows Navitas is rated as Buy five times and Hold three times, Citi suggesting while the stock is trading on a relatively full multiple at present the strong growth profile and upside risk to earnings means there remains enough value in the stock to justify its Buy rating.
UBS suggests investors should focus on the free cash flow being generated by the business as the group is on a free cash flow yield of around 9.5%, opening up options for management to further grow the business or to reward shareholders down the track. As with Citi, Credit Suisse suggests there remains upside risk to earnings given a consistent long-term industry growth outlook and the international expansion opportunities Navitas is developing.
The average share price target according to the FNArena database is $4.11, up from $3.93 prior to news of the US move, while Navitas shares today are trading slightly higher (in a weaker market) and as at 10.50am the stock was up 5c at $4.15. Over the past year its trading range has been $2.01 to $4.35.
