Shareholders of Navitas Limited (ASX: NVT) have seen the value of their shares fall by more than 12% since the global education provider released its full year results just two weeks ago.
With the share price nearing its 52-week lows, now looks like a good opportunity to review the company's results and determine if the current share price offers value for long-term investors.
Company Background
Navitas is a leading global education company with a market capitalisation of more than $1.5 billion. It provides more than 80,000 students with university programs, vocational training, English as a second language courses and work preparation programs.
Navitas partners with various universities around the world to deliver some of these programs and has been successful in targeting the surge in international students looking to improve their language and professional skills.
Full Year Results
Navitas recorded a 12% increase in FY15 revenues to $980.3 million and an 11% increase in net profit after tax (NPAT) to $91.4 million. Earnings per share (EPS) also increased by 11% while the full year dividend of 19.5 cents remained the same as the previous year.
64% of Navitas' revenues were generated in Australia with the remainder fairly evenly split between the UK, Europe, Canada and the US.
Divisional Results
The university programs division increased revenue by 13% and earnings grew by 15%, helped by a 0.4% improvement in margin. This division has been a concern for investors recently as the loss of two major contracts will impact profitability in FY16 and FY17. The impact of this is already being seen in domestic enrolments, with a 2% decline in enrolments compared to the same time last year. Enrolments are also being affected by fewer international student applications as a result of tougher immigration rules being implemented by the Australian and UK governments.
Navitas' professional and English programs division delivered a record performance with a 17% increase in earnings mainly as a result of cost reductions. Interestingly, the reduced number of refugees and migrants entering Australia has impacted this division and this is expected to continue in the short term.
The SAE division performed strongly with a 23% increase in revenue and a 7% increase in earnings. This result was driven by strong enrolment growth, especially in Australia and there appears to be good earnings momentum from this division moving forward.
Outlook
The short-term outlook for Navitas is not overly positive with management forecasting flat earnings growth for FY16. Although it expects growth to be solid in some of its university programs and other divisions, this will not be enough to offset the impacts from the loss of the two major university contracts.
Although the short-term outlook is difficult, the long-term outlook is far more positive. As the graph below shows, the number of tertiary students is expected to dramatically increase over the next decade. The majority of this growth will come from Asia and a large proportion of these students will look to study abroad.
Source : Navitas FY15 Results Presentation
Interestingly, the US, UK and Australia are the three top English speaking destination countries for international students and as Navitas has divisions in all of these countries, it will be interesting to see if the company will be able to take advantage of this tailwind.
Valuation
At the current share price of $4.10, the shares are trading on a price-to-earnings ratio of 16.8 and investors will receive a fully franked dividend yield of around 4.8%.
Foolish takeaway
With earnings expected to be flat for the next year, any significant share price recovery in the short term is unlikely in my opinion. I would be inclined to wait until earnings growth begins to increase again or the share price falls even further before buying. With that in mind, I am positive about Navitas' long term potential and this is why I'll be keeping a close eye on its progress over the next year.
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