Roughly $170 million of shareholder value has been wiped from education program provider Navitas Limited (ASX: NVT) over the last two days. The stock endured further selling pressure on Tuesday as its shares tumbled another 3.3%, compounding the impact of yesterday's 6.4% decline.
Navitas reported an impressive lift in revenues and profit for the year ended 30 June 2015 with the top line gaining 12% to $980.3 million, while reported net profit after tax (NPAT) rose 39%.
The only problem is that growth isn't forecast to carry on into the current financial year (2015/16) with management predicting a "challenging year" ahead where it expects earnings before interest, tax, depreciation and amortisation (EBITDA) to remain "broadly in line" with that achieved in FY15.
One of the reasons for the flat earnings growth expectations relates to the loss of its contract with Macquarie University, which Navitas says will impact student enrolments and financial performance for the core University Programs division during the 2016 and 2017 financial years. In particular, it will be felt in the 12 months from February 2016 which UBS believes could cost the company $25 million in annual earnings, as reported by The Australian.
On a more positive note however, the company did report a slight 0.4% improvement in margins for the division while growth in its Professional and English Programs (PEP) and SAE Divisions should help to mitigate some of the losses endured by the University Programs segment.
Although the next two years could be somewhat challenging for Navitas, investors could certainly see now as an opportunity to begin building a long-term position. While it seems that much of the downside risk is already priced into the stock, international student growth is tipped to remain strong over the coming years and Navitas is well positioned to benefit – especially if it can continue to expand its portfolio of university partners.
