This week’s hot stock, courtesy of Chris Batchelor, is Navitas (ASX:NVT).
Navitas key statistics
Closing share price 07.02.17: $4.70
52-week high: $6.05
52-week low: $4.33
Most recent dividend: 9.4c
Annual dividend yield: 4.11%
The private education sector in Australia leans heavily on international students for its profitability. This means it is subject to the impact of external events, especially political risks. Right now the political climate in Australia is largely welcoming for foreign students, but as recently as under the Gillard government that sentiment was different.
Australia competes with the US, UK, Canada and New Zealand for international students who want a highly regarded English language education. Right now there is a high level of uncertainty surrounding the US as the new Trump administration seems determined to implement much tighter immigration restrictions. Similarly in the UK, a major contributor to the Brexit decision was an anti-immigration sentiment, which is making the UK less attractive. The relatively low Australian dollar and close proximity to the burgeoning middle class in Asia are making Australia a more competitive destination.
Navitas is an education provider with operations across all of these English-language education destinations. It derives 63% of its revenue from Australia and 9% from Canada. The Australian government has a goal to increase international enrolments by 45% by 2025 and the Canadian government is also targeting a 34% increase in the next five years.
So against this background, how does Navitas stack up as a business? It has endured some negative sentiment in recent months, largely due to the closure of two university partner collages linked to Macquarie and Curtin universities. These closures were announced 18 months ago and accounted for 20% of earnings. That gap has now largely been filled and earnings are now forecast to grow steadily.
Navitas appears to have a window of opportunity to capitalise on the current demand for a global education. Australia and Canada are currently its strongest-growing markets and are the countries best positioned to take advantage of global trends. With the retraction in the share price from $6.05 to $4.70 currently, the stock does not look expensive provided Navitas is now able to seize the moment and grow earnings.
Chris Batchelor is a Chartered Financial Analyst (CFA).