NVT – Navitas Limited

An education on Navitas
Navitas Limited (ASX:NVT) is an education services provider operating in multiple cities around the world, providing educational services including university programs, language training, workforce education, and student recruitment.  Principally, it offers pathway programs at colleges and universities in Australia, the UK, Europe, Canada, Asia, the USA, India and Africa.

Navitas began in the early 1990’s when Rod Jones and Peter Larsen identified a need for a different kind of pathway into university in Australia.  This new pathway – aimed at international students – provided both academic and social support and addressed the cultural and linguistic challenges that international students studying in an English-speaking study environment face every day.

Navitas now enrols about 55,000 students each year globally.  Students originate from over 80 countries worldwide and attend a campus in one of 28 countries.

Navitas operates under four divisions:

  1. University Programs
  2. English
  3. Workforce
  4. Student Recruitment

Does this business have a sustainable competitive advantage?
Navitas is universally recognised as the most trusted global learning organisation in the world.

Navitas is the largest provider of English language training in Australia.  The company helps students, teachers, travellers and migrants develop their English language skills for further study, work and life.

Navitas has established strong relationships with partner universities who welcome the additional direct revenues Navitas delivers.

The contracts Navitas have formed with partner universities for the enrolment of foreign students generally have a term of five years which gives a certain level of security to Navitas’ earnings.

What are the risks facing this business?
The main key risk experienced by Navitas is a change in the regulatory environment imposed by governments around the world.  This change experienced in recent years is a restriction placed on the number of education visas issued to foreign students.  This restriction has occurred in two of Navitas’ key markets being Australia and the UK.

Apparently, this restriction is being eased going forward as governments in the UK and Australia realize the economic benefit provided from additional foreign students occupying their country.

The other less significant risk is the high Australian dollar making education for foreign students more expensive in Australia than it once was.

Is it run by able and trustworthy management?
The company’s Managing Director Rodney Jones is one of the founders of the business.  He obviously has a strong working knowledge of his business and operating environment.  Mr Jones has been involved in the growth of the business which had just 198 students in 1994 to a business which now enrols about 55,000 people globally.

Navitas took on about $175 million of debt to acquire SAE Group in December 2010.  This acquisition allowed the company to expand into a new area being media and technology training for students.  Since making this acquisition, the company has paid off about $40 million of this debt.

Is it trading at a bargain price?
Navitas is a highly profitable business with a history of not needing much capital to continue running their business.  Therefore, Navitas has very strong cash flow too.  The company pays out the majority of their earnings as dividends. While this is good for shareholders from an income perspective, it does limit the share price appreciation of the business.

Company Code Rank 2011 Actual Valuation 2012 Actual Valuation Today’s Share Price Margin of Safety 2013 Forecast Valuation 2014 Forecast Valuation
Navitas Limited NVT Silver 1 $1.88 $1.70 $3.78 -100.00% $1.89 $2.20

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Here is a chart of the company’s share price performance over the past six months.

In summary, Navitas is a highly profitable company that is a market leader in its field.  It has strong cash flow but increased its debt level in when making its large acquisition in 2010.  It has good management and always seems to trade at a premium to my estimate of value.  The company presents that it is well placed to grow with a relaxation of the imposed restrictions on foreign student numbers.

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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