IQE - Intueri Education Group

[System]

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

 

[robusta]

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

 

[DB008]

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?

 

[McLovin]

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.

 

[Klogg]

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.

 

[skc]

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.

 

[Klogg]

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.

 

[McLovin]

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.

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!

 

[Klogg]

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.

 

[McLovin]

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.

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.

 

[Klogg]

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...

 

[Klogg]

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.

 

[McLovin]

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?

 

[Klogg]

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.

 

[Klogg]

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.

 

[Klogg]

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.

 

[skc]

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.

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!

 

[Risk Manager]

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.

 

[Risk Manager]

Nice open in NZ

 

[craft]

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.