4 Education Stocks under Investors’ Radar- 3PL, AKG, KME, EVO

  • Feb 14, 2020 AEDT
  • Team Kalkine
4 Education Stocks under Investors’ Radar- 3PL, AKG, KME, EVO

The Australian education sector is deemed to be a significant resource to Australian society. Many players of the education sector are quickly adopting new technologies like cloud-based services and artificial intelligence, to cope up with the changing world. In the light of this scenario, let’s take a look at the recent performances of a few education companies, trading in Australia.

3p Learning Limited (ASX: 3PL)

Online education company, 3p Learning Limited (ASX: 3PL) is engaged in sales as well as marketing of online educational programs to schools.

During the last financial year, the company had sales execution issues in APAC in H2-19 which resulted in licence loss and, consequently, this has negatively impacted the company’s H1-20 result. The corrective measures the company put in place at the end of FY19 in APAC are now on track with licences up 4% in the first half of FY20.

(Source: Company Reports)

Further, the company is expecting growth in cash billings in the second half of FY20, relative to second half of last year. The company’s expected growth is driven by its stronger and expanded product portfolio and customer base, accelerated growth in the Americas and customer retention improvements in all regions.

The company expects FY20 to be more skewed to H2, due to four factors:

  • The 12-month effect of APAC FY19 sales execution issues will impact H1-20 more than H2-20;
  • Improved retention in APAC will buoy H2 performance;
  • Product releases in H1-20 have already shown traction in market and this, coupled with H2-20 product releases, should support stronger sales in H2-20;
  • Growth in the Americas is seasonally skewed to H2

In the second half the company expects to leverage its installed base with its expanded and stronger product portfolio, including a significant back-to school product release in Mathletics which includes a stronger 7-10 offering. The company also expects retention improvements from improved product and customer experience.

3PL currently has a market cap of around $111.55 million with stocks trading at a market price of $0.800 (as at 14 February 2020).

Australasia Group Limited (ASX: AKG)

Australasia Group Limited offers courses covering Bachelor and master’s degree programs, senior high school, diplomas and advanced diplomas. AKG has campuses in Sydney, Melbourne, Brisbane, Adelaide, Perth, Gold Coast and Dubbo in Australia.

In FY19, the company reported EBITDA of $9.3 million after adjustment for significant items - a 34% increase on FY18. Last year, the company witnessed significant improvement in several areas:

  • Revenue from ordinary activities Up 8% to $66.35 million
  • Profit from ordinary activities before tax Up 10% to $6.71 million
  • Profit from ordinary activities after tax Up 8% to $4.81 million
  • EBITDA Up 6% to $7.93 million
  • Net cash at 30 June Up 16% to $15.0 million
  • Net operating cash flows Up 114% to $7.99 million

The company declared a fully-franked final dividend of 2.37 cents, taking the total dividend for the final year to 3.67 cents per share. AKG’s stock was last traded at a price of $0.510.

Kip Mcgrath Education Centres Limited (ASX: KME)

Kip Mcgrath Education Centres Limited provides services to franchisees in the education field and is also involved in the sale of franchises.

During the last financial year i.e., FY19, the company recorded net profit after tax of $2.6 million which is an increase of 17.2% over the previous year. In addition, the company reported EBITDA of $5.2 million up by 27.6% on last year with strong contributions from the company’s major markets in the United Kingdom, Australia and New Zealand through growth in numbers of centres, Gold Partners, student face to face and online lessons. Cash flow remains strong.

The company’s ongoing developments include:

  • Purchase of Yorkshire and the Humper Area Developer territory completed
  • Online tutoring continuing to grow with 2,750 lessons per month
  • Four operational corporate centres now with over 650 lessons a week

Moving forward, the company expect that its revenue, profit and margins to grow through a combination of the ongoing development and automation of the software as a service, its national advertising campaigns and the option for students to choose between face to face and online tuition. In FY20, the company expects its EBITDA and NPAT margins to improve with savings from Area Developer buy back.

Notably, in the past six months, KME stock price increased by 38.53% on ASX. At market close on 14 February 2020, KME stock was trading at a market price of $1.520 with a market cap of around $68.3 million.

Evolve Education Group Limited (ASX: EVO)

Childcare and education centre operator, Evolve Education Group Limited recently announced five acquisitions, subject to financial and legal due diligence, for a transaction price of $12.03 million.

Last year in September, a new board took charge of the company and since then, the company has successfully implemented aggressive, positive change which is expected to have a meaningful impact on Group financial performance moving forward.

The key components of these changes are as follows:

  • Centre based daily fees were assessed against local markets and a price increase was implemented to ensure centres were price competitive in their local communities;
  • Implementation of strict controls on price discounting were introduced and consequently, the average daily fee paid by the parents across the group increased from NZ $25.30 at the start of April 2019 to NZ $28.00 as at mid November 2019;
  • Support office was streamlined delivering annualised savings of approximately NZ $3.4 million per annum with effect from 1 December 2019;
  • Board fees were reduced by 16.7% as a commitment to the financial performance turnaround strategy; and
  • Occupancy was stabilised at 72% as at mid November 2019.

In CY20, the company expects its EBITDA from the EVO Australian operations to be around $5 million.

The company’s strategy for FY20/FY21/FY22 remains two fold:

  • Driving centre based occupancy improvements in NZ through focused digital marketing initiatives; driving casual days through technology enhancements; a centre based people investment strategy on training/resources; and ensuring its properties remain market leading in the communities where they operate.
  • Pursuing further acquisitions in Australia.

At market close on 14 February 2020, EVO stock was trading at a market price of $0.140.

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