# IQE - Intueri Education Group



## System (23 May 2014)

The Intueri Education Group is one of New Zealand's largest private vocational education groups. Their internationally recognised schools specialise in providing industry relevant training across a number of industries where there is steady demand for skilled people. These fields include Design and Arts, Beauty and Spa Therapy, Culinary Design and Hospitality Management as well as Hairdressing, Make Up Artistry and Commercial Diver Training.

http://www.intueri.co.nz


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## robusta (25 May 2014)

IQE is being spun out of AWN who will retain about 30 percent. AWN shareholders should receive a capital return shortly.


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## DB008 (10 February 2015)

I got in on this one a few months ago. As soon as I did, the share price dropped anchors. Anyways, it seems to be coming back up now (which is good).

Anyone else on this?


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## McLovin (5 August 2015)

Another day, another education provider downgrading their outlook.

FY15 (they work on calendar year) EBITDA revised down from $30-$33m to $27m-$29m.

You do have to wonder if all these training providers were being valued based on eachother's valuations. They're certainly proving that the rollup model isn't all it's cracked up to be.


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## Klogg (5 August 2015)

McLovin said:


> Another day, another education provider downgrading their outlook.
> 
> FY15 (they work on calendar year) EBITDA revised down from $30-$33m to $27m-$29m.
> 
> You do have to wonder if all these training providers were being valued based on eachother's valuations. They're certainly proving that the rollup model isn't all it's cracked up to be.




What's surprising is last year's 2H downgrade was a result of increased expenditure, rather than lack of revenues (they exceeded their revenue target). I would like to see if this is the case this time around.

On those earnings, the company is not expensive. The question is whether this increased expenditure and soft performance in Quantum is permanent.

I will also note that there is a large amortisation charge that is 'tax-effected' in their calculations of NPATA, which are items that are not capitalised in the course of business, but rather as a result of acquisitions. If you calculate free cash flows in the next 3 years rather than EPS, it appears a little more attractive than expected, and should allow them to pay down debt a little faster.

I do hold this one btw.

EDIT: For what it's worth, EBITA guidance (that is, after depreciation) is 27-29m.


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## skc (5 August 2015)

Klogg said:


> What's surprising is last year's 2H downgrade was a result of increased expenditure, rather than lack of revenues (they exceeded their revenue target). I would like to see if this is the case this time around.
> 
> On those earnings, the company is not expensive.
> 
> EDIT: For what it's worth, EBITA guidance (that is, after depreciation) is 27-29m.




Remember that's Kiwi dollars. So only ~$A25m taking the mid point.


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## Klogg (5 August 2015)

skc said:


> Remember that's Kiwi dollars. So only ~$A25m taking the mid point.




Yeah, had that worked in, but worth mentioning - thanks.

I really want to see EBITA margins in the 1H report. Sounds like the 30% margin they were selling won't be maintained.

On another note, does anyone know where I can get PTE enrolment figures (specifically domestic) for the entire industry?
I've located 2013 numbers, but I was hoping for something a little more recent.


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## McLovin (6 August 2015)

Klogg said:


> What's surprising is last year's 2H downgrade was a result of increased expenditure, rather than lack of revenues (they exceeded their revenue target). I would like to see if this is the case this time around.
> 
> On those earnings, the company is not expensive. The question is whether this increased expenditure and soft performance in Quantum is permanent.
> 
> ...




I'm trying to get my head around how they're arriving at NPATA. In Note 16 are amounts prior to 30 June 14 inlcuded in this calculation? Especially wrt course materials. I have a feeling the answer is really easy and staring me in the face but I can't work it out!


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## Klogg (6 August 2015)

McLovin said:


> I'm trying to get my head around how they're arriving at NPATA. In Note 16 are amounts prior to 30 June 14 inlcuded in this calculation? Especially wrt course materials. I have a feeling the answer is really easy and staring me in the face but I can't work it out!




My apologies if I'm telling you something you already know, but I'll try to explain it how I understand it. It's presented quite poorly to be honest, but the way I read it is as follows:

Under the table "Accumulated Amortisation and Impairment" (half way down the page on Note 16), just add the lines "Amortisation as reported for period to 30 June 2014" and "Amortisation for remainder of the year". To be exact, you may want to add in the adjustments, as well.

For course materials, this becomes:
942 + 1755 + 19 - 9 (adjustments & FX) = $2,707K

Two things worth noting:
- Pro-forma and Statutory amortisation differ, as per the reconciliation on page 79
- Statutory amortisation is listed at 7.4m, against the 7.581m I get through Note 16 calculations. I believe this is because one of the intangibles is not included in NPATA calculations, but I don't remember which. Will post once I figure it out again.

EDIT: To answer your question, they seem to have a cumulative total, rather than amortisation for the year. But the 7.4m figure in the NPATA reconciliation does not include last year's amortisation.


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## McLovin (6 August 2015)

Klogg said:


> My apologies if I'm telling you something you already know, but I'll try to explain it how I understand it. It's presented quite poorly to be honest, but the way I read it is as follows:
> 
> Under the table "Accumulated Amortisation and Impairment" (half way down the page on Note 16), just add the lines "Amortisation as reported for period to 30 June 2014" and "Amortisation for remainder of the year". To be exact, you may want to add in the adjustments, as well.
> 
> ...




Thanks, Klogg

I know what my problem was! I was thinking NPATA was EBIT and wondering why they were using post tax amortisation. 

Re statutory amortisation, I think there maybe some intangibles which have been internally generated which is why when you calculate from note 16 it doesn't equal the $7.4m listed on page 79. If you look at note 6, it gives the full statutory amount that has been amortised for the period ($7.593m). And 7.4*0.7 ≈ $5.2m which is the tax affected amount listed on p79.

Sorry, if that's a bit of a ramble and doesn't make sense.


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## Klogg (6 August 2015)

McLovin said:


> Re statutory amortisation, I think there maybe some intangibles which have been internally generated which is why when you calculate from note 16 it doesn't equal the $7.4m listed on page 79. If you look at note 6, it gives the full statutory amount that has been amortised for the period ($7.593m). And 7.4*0.7 ≈ $5.2m which is the tax affected amount listed on p79.




Ah, that makes sense. Thanks!

On a completely different note, if I had a broker who gave me access to the ASX/NZX, could I take advantage of the arb opportunity? 
Obviously, the margin would need to be big enough for brokerage and exchange rate costs, but there are times when there's 5% to be made on some parcels...


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## Klogg (21 August 2015)

Wow. Have a listen to the presentation. Management were light on details about the performance of Quantum, until question time - specifically regarding the pass rates of Quantum and related TEC funding.


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## McLovin (21 August 2015)

Klogg said:


> Wow. Have a listen to the presentation. Management were light on details about the performance of Quantum, until question time - specifically regarding the pass rates of Quantum and related TEC funding.




Got a link to the call or care to fill us in?


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## Klogg (21 August 2015)

McLovin said:


> Got a link to the call or care to fill us in?



www.intueri.co.nz/downloads/files/Accessing_Audio_Replay.pdf

You have to listen to it over a teleconference type reply system, or you can call them for the mp3 (which I might do now).

It's very long, but get to the end bit when Tim Hunter from NBR starts asking questions. Specifically, he asks if Quantum were incorrectly reporting to the TEC, replacing students that had dropped out with newly added students.
The answer the CEO gave didn't instill confidence, as he doesn't deny it, just says that reporting approaches were "different".

Hunter also asked about the percentage of revenues from Quantum that are TEC funded - there was no answer on it, but Rob Facer did suggest they'd take it offline. I've emailed their investor relations to find out more, but I doubt I'll get anything.

EDIT: I just called regarding the mp3 file - they will try to email it (if size permits), otherwise they'll let me grab it over Dropbox. Once I get it, I can pass it on if you like.


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## Klogg (24 August 2015)

For anyone that's interested - I received a response from Intueri about the portion of Quantum revenues that come from TEC funding. 
The response was:
"Approximately 15% of Quantum Education Groups revenue comes from TEC funding. "

Given pro-forma revenues of $27m in FY14 (page 40 of the annual report), this would come out to be about $4.05m in revenues.

The risk is not nearly as high as I thought. Had the majority of revenues come from TEC funding, this would mean factoring in a huge contingent liability.

Happy to hear any thoughts on this.


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## Klogg (27 November 2015)

Oh how badly I got this one wrong... I two days ago at about 70c, but the continual selling is insanity. 30c now and still in freefall.

Overall loss of about 52% on the position - hurts big time. I completely underestimated the chance of dodgy behaviour from schools (especially given they were just acquired) and how bad management are. Management quality really shows when Tim Hunter from NBR asked them questions regarding Quantum, and they didn't address it at all.

I'll be sure to rub this in my own face for a while... If it's going to cost me, I may as well learn from it.


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## skc (27 November 2015)

Not a good year for the sector! 





Note the return for VET is most likely -100%. And ACO may never return to the ASX by the looks.

Is there not a single ethical and competent operator out there?

P.S. I actually don't know much about RDH... I haven't heard anything negative news specific to it's RTOs.
P.S. SIO is part house builder and part builder training school. It's unsure which part of the business is dragging down the share price.



Klogg said:


> I'll be sure to rub this in my own face for a while... If it's going to cost me, I may as well learn from it.




It's an tax asset!


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## Risk Manager (28 November 2015)

skc said:


> P.S. SIO is part house builder and part builder training school. It's unsure which part of the business is dragging down the share price.





SIO just completed a buyback, I think that stock is under the radar.

IQE looks incredibly cheap to me, I bought a bit (3% of my portfolio) averaging around $0.50 and happy with it.


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## Risk Manager (30 November 2015)

Nice open in NZ


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## craft (4 December 2015)

skc said:


> Is there not a single ethical and competent operator out there?




NVT is on the periphery of Vocational education - just cooling their heels.

If you go to about the 3 Hour 5 Minute mark there is a interesting answer to a question regarding the VET sector. If you want to know what quality and ethics in education and looks like and you have three hours to spare you could watch from the start.

http://edge.media-server.com/m/p/2nj6h35o

ps

Buying quality is boring compared to the swings in this sector lately but if you are looking for a passive long term investment there is no substitution for quality.


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## chops_a_must (7 December 2015)

skc said:


> Not a good year for the sector!




Which is really worrying. Education is one of the strongest counter cyclical sectors there is.

Is there an education index at all?


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## Risk Manager (10 December 2015)

Fresh from striking a $212 million deal to buy the listed childcare company Affinity, Australian private equity firm Anchorage Capital Partners is believed to be circling another business in the sector ”” the troubled Intueri Education Group.

Anchorage is backed by former Macquarie boss Allan Moss and the bank’s former executive director Phil Cave and appears to be positioning itself to capitalise on the private education sector at a time it’s in deep trouble.

It was the buyout firm that purchased Dick Smith from Woolworths for $94m before floating the business for a value in excess of $500m.

The market value of Dick Smith has since fallen to about $85m.

*According to sources, Anchorage has Intueri, which is one of the largest private vocational groups in New Zealand, in its sights.

New Zealand private equity outfit Arowana International, which spun out Intueri last year, is also said to be considering a re-*privatisation. It owns nearly a quarter of the company.

Others suggest Champ Private Equity could be running the ruler over the business.*

But sources close to Intueri said the company had not engaged with Anchorage or any other private equity firm about a potential acquisition.

Intueri Education’s profile seems attractive to Anchorage, one of Australia’s most opportunistic deal-makers.

Its market value has fallen to $42.5m from the $236m it was worth around the time it was floated by Macquarie Capital and UBS last year.

Its share price collapse was largely brought on by a number of regulatory probes by New Zealand’s Tertiary Education Commission, but also by the troubles throughout the sector, with rival provider Vocation falling into administration in recent weeks.

An Intueri subsidiary is now under review by the TEC after a fatal accident involving a diver on one of its courses.

In Australia, Intueri operates its Online Courses Australia subsidiary, which accounted for 22 per cent of group revenues in the first half of the year.

That business is funded under the VET FEE-HELP loan scheme that has attracted widespread criticism following revelations that hundreds of millions of dollars were flowing to colleges with very poor student outcomes.

The federal government last month introduced laws aimed at stemming the flow of funds to colleges, with further clampdowns flagged.

Australian Careers Network is also under the spotlight after a subsidiary was deregistered by the Australian Skills Quality Authority over similar problems.


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## McLovin (27 September 2016)

Looks like the end for IQE. Non-compliance in admissions and assessments (read: anyone gets in and everyone passes). Possible outcome is cancellation of registrations. There is still a written submission to be made, but it seems like it'll be all over by mid/late November. 

Down 78%.


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## Klogg (27 September 2016)

McLovin said:


> Looks like the end for IQE. Non-compliance in admissions and assessments (read: anyone gets in and everyone passes). Possible outcome is cancellation of registrations. There is still a written submission to be made, but it seems like it'll be all over by mid/late November.
> 
> Down 78%.




This one remains my biggest mistake. Ditched it when **** started hitting the fan (~75cps from memory), but an ~55% loss of capital is horrible.

I still think of it everytime I take a new position...


Surprised AWN hasn't been hit harder.


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## System (19 January 2017)

On January 17th, 2017, Intueri Education Group Limited (IQE) was removed from the ASX's official list pursuant to Listing Rule 17.2.


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