Academies is head of the class

A key export industry where Australia has an edge: Education

a woman

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When asked to name the country's top export industries many of us may struggle to think past our huge mining sector. But we would be overlooking a key export industry where Australia has an edge: Education. Education-related travel is our 4th biggest export industry, generating earnings of $15 billion per annum (iron-ore, coal, and gold, take out the top 3 spots).

Australia has three strong competitive advantages in providing international education: an internationally recognised and high-quality 'Western' education system; close proximity to the booming middle classes of Asia; and graduate employment opportunities that are the envy of the Western world.

Academies Australasia (ASX: AKG) has leveraged all of these advantages to grow strongly over the past decade, both organically and through intelligent acquisitions. For the last three years it has grown both revenue and net profit at a compound annualised rate of over 25%.

A solid report card

Academies Australasia offers a broad range of education services that run the gamut of international student education: English language; Vocational Training; and Higher Education. In the last 5 years the company has expanded from around 2,000 students, to over 10,000 students, including new colleges located in Singapore and Malaysia.

In late June, Academies announced the acquisition of Spectra Training for $15.7 million at an EBITDA multiple of 3.8 times. Spectra specialises in workplace-based training with approximately 4,000 students across all six States in Australia. Unlike most of Academies' existing businesses, Spectra is focused on domestic students – a sector that could be particularly well positioned to benefit from Australian education reform.

Singapore and beyond

Despite Australia's advantages, there are still a lot of barriers that prospective students need to overcome to study here. Visa restraints, currency concerns, and distance from family members all conspire against the would-be student.

The management team at Academies Australasia have recognised these challenges and arrived at an elegant solution. If you can't bring the student to the quality education, bring the quality education to the student!

In 2009 the company entered the Singapore market with the intention to use it as a launching-pad into the rest of Asia. The Singapore based college provides an Australian quality education, in a location that is closer to the student's home base, and at a lower overall cost to the student.

During the last financial year the total revenues of the Singapore college grew 21% to $3.6m. With the booming middle classes of Asia seeking out the best education that they can, this is a business area that is poised for growth.

The rise of the aggregators

Academies Australasia is well positioned to be the 'lead aggregator' in the international education sector and has a long history of growing via astute acquisitions.

The education industry in Australia is highly fragmented. There are almost 5,000 Registered Training Organisations that offer vocational education and over 11,000 that offer language training and other educational services. In other words, there are a lot of inefficient education providers that provide ample opportunity for Academies Australasia to continue aggregating smaller players into its operations.

By bringing its management expertise to newly acquired companies such as Spectra, Academies Australasia is able to significantly boost operating performance. The company also benefits from the scale advantages that are realised by consolidating administration and overhead costs.

At the time of its IPO in 2004 Navitas (ASX: NVT) was the lead aggregator of for-profit educators in Australia. These days Navitas is a giant, with a global presence and a market capitalisation of $1.95 billion. Consolidating small colleges is no longer worth its time – thereby creating an opportunity for Academies Australasia to take the lead.

Matt Joass is a Motley Fool analyst. He owns shares in Academies Australasia. You can follow The Motley Fool on Twitter @TheMotleyFoolAu. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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