NVT - Navitas Limited

[VSntchr]

Re: NVT - Navitas

There were a few key government contracts in the Professional and English Programs (PEP) division up for renewal on 1 July 2014 (refer investor presentation on 26 March 2014 page 35).

It's now 8 July 2014 and we have a trading halt mentioning "status of the negotiations." I wonder if the government is playing hard ball or if another competitor has made an enticing bid.

PEP was about 14% of EBITDA in the 2014 HY.

Potentially could be time for people like myself who don't hold NVT to sharpen the pencil and pull out the ruler, just in case any potential contract loss causes an over-reaction.

A few high quality businesses have been getting cheaper lately, hopefully (for me) this one joins the list...

 

[JTLP]

Re: NVT - Navitas

Potentially could be time for people like myself who don't hold NVT to sharpen the pencil and pull out the ruler, just in case any potential contract loss causes an over-reaction.

A few high quality businesses have been getting cheaper lately, hopefully (for me) this one joins the list...

Indeed...this recent government shakeup on all things could make for an entry in to NVT.

Out of interest - others that you are looking at?

 

[robusta]

Re: NVT - Navitas

Seems Macquarie uni have decided to go it alone, the market reaction should be interesting this will be a hit to medium term growth.

 

[Ves]

Re: NVT - Navitas

The decision by Macquarie University to provide their own PEP services through an internally funded college, rather than in alliance with Navitas' college poses serious questions and threats to Navitas' business model in general, at least in that segment.

The main question that most investors should ask, notably, what does the Navitas structure provide that the universities cannot themselves via internal colleges? Is it a matter of scale, cost, or expertise in niche? Navitas' competitive advantage has been very strong to date and has allowed them to generate massive excess returns.

However, any weakening or even loss to their competitive position, would have massive ramifications to the intrinsic valuation of the company.

This is an interesting development, because my understanding to date is that the market has previously focussed on student numbers (and threats to this, regulation or otherwise) rather than Navitas' relationship with the universities, which appeared to be rock-solid.

I often get the feeling that relationships to suppliers (which are often blindly not seen as competitors) are harder to get a grasp on than those with customers in most businesses. It really highlights that businesses are part of dynamic "360 degree systems", not just top-down.

 

[ROE]

Re: NVT - Navitas

they can go alone but I say they may not get the result they want ..

NVT is like FLT, they have agents and network every where anyone who act against this network may think they may do better but NVT stop recommending students going to Mac uni and sell them other Uni.

Uni best job is to teach and get students number when they want to run someone else business they may not do as well but only time will tell

Buy today after got out during a hot run

my 2c

 

[McLovin]

Re: NVT - Navitas

Got to love Sky Business...

"We can't really explain the SP fall, they've reaffirmed guidance and said they've extended their contract with Macquarie University..."

 

[skc]

Re: NVT - Navitas

The decision by Macquarie University to provide their own PEP services through an internally funded college, rather than in alliance with Navitas' college poses serious questions and threats to Navitas' business model in general, at least in that segment.

The main question that most investors should ask, notably, what does the Navitas structure provide that the universities cannot themselves via internal colleges? Is it a matter of scale, cost, or expertise in niche? Navitas' competitive advantage has been very strong to date and has allowed them to generate massive excess returns.

However, any weakening or even loss to their competitive position, would have massive ramifications to the intrinsic valuation of the company.

This is an interesting development, because my understanding to date is that the market has previously focussed on student numbers (and threats to this, regulation or otherwise) rather than Navitas' relationship with the universities, which appeared to be rock-solid.

I often get the feeling that relationships to suppliers (which are often blindly not seen as competitors) are harder to get a grasp on than those with customers in most businesses. It really highlights that businesses are part of dynamic "360 degree systems", not just top-down.

Can't seem to get a handle on SIBT's student numbers. My guess is something north of 2k. Anyone know better?

As far as trading is concerned... it's a gift this morning on open at $4.60. Looking to close a good part of it over $5. Probably has some chance of going back to $6 in the coming weeks. Shades of MMS.

Fundamentally...the bold part is a very good question. It will probably be reflected in a reduced PE multiple for some time.

 

[ROE]

Re: NVT - Navitas

As far as trading is concerned... it's a gift this morning on open at $4.60. Looking to close a good part of it over $5. Probably has some chance of going back to $6 in the coming weeks. Shades of MMS.

I got up late after watching the soccer just turn on the computer and see it sits at $4.88, missed the opening that soccer match cost me a few K hahaha...

 

[Ves]

Re: NVT - Navitas

Can't seem to get a handle on SIBT's student numbers. My guess is something north of 2k. Anyone know better?

The SIBT website says that the figure is 3,160. If this was correct, NVT's previous investor communications have stated that this is an indicative EBITDA margin of about 40-50% for a college this size (remember that due to operating leverage in this business EBITDA margins grow fairly quickly as student numbers start falling straight to the bottom line once the college reaches a certain size - somewhere near 1,000 students).

 

[skc]

Re: NVT - Navitas

The SIBT website says that the figure is 3,160. If this was correct, NVT's previous investor communications have stated that this is an indicative EBITDA margin of about 40-50% for a college this size (remember that due to operating leverage in this business EBITDA margins grow fairly quickly as student numbers start falling straight to the bottom line once the college reaches a certain size - somewhere near 1,000 students).

So are these 1 year programs? With 3 semesters per year?

The student enrolment numbers in the last 3 semesters (globally for University Programs) were 50k. And these UPs are about 75% of EBITDA before corporate costs. So they potentially lost say 7-8% of students (albeit most profitable ones due to scale of the campus). So say 15% hit to EBITDA of $120m so $18m impact. That leaves group EBITDA of $125m.

So the direct impact doesn't warrant a 30% fall in share price... but it's one of those priced mostly to continuous growth stories (again, shades of MMS) and the market definitely didn't see this coming, and asking if there'd be more internalisation of UP's.

Can't wait to hear Craft's input.

 

[VSntchr]

Re: NVT - Navitas

The decision by Macquarie University to provide their own PEP services through an internally funded college, rather than in alliance with Navitas' college poses serious questions and threats to Navitas' business model in general, at least in that segment.

I think that situations such as this will serve to show the true strength of the model. If Macquarie does well, then it may start a trend with other Uni's thinking they can follow their lead.... however they may not do well at all as ROE points out aswell. Another factor to consider is Macquarie now carry a bigger burden whereas before part of the burden was on NVT to deliver.

I think that the best way to strengthen a CA in the long term is to give it a thorough test, you know what they say about what doesn't kill you....but we still have to wait to see if this (albeit slowly) kills Navitas.

they can go alone but I say they may not get the result they want ..

NVT is like FLT, they have agents and network every where anyone who act against this network may think they may do better but NVT stop recommending students going to Mac uni and sell them other Uni.

Uni best job is to teach and get students number when they want to run someone else business they may not do as well but only time will tell

I agree. I think the trend of the modern business is to focus on what you do well and to outsource the rest. Businesses trying to fight this trend are heading in the wrong direction IMO (with exceptions).

I wonder if this decision by Macquarie has anything to do with the budget measures released recently?

Indeed...this recent government shakeup on all things could make for an entry in to NVT.

Out of interest - others that you are looking at?

And it has for me, I am back on the register Hence read my post knowing its now biased!
Have been watching FLT and BRG. No purchases yet but got pretty close when FLT got done to ~$43.

As far as trading is concerned... it's a gift this morning on open at $4.60. Looking to close a good part of it over $5. Probably has some chance of going back to $6 in the coming weeks. Shades of MMS.

I thought 4.60 on open was a gift too, got a trading parcel and looking for $5+ in the short term but am also prepared with proper risk mgt incase the market ignores what I want and keeps heading south

I am also looking forward to hearing Craft's input, perhaps he is busy backing up the truck :

 

[Ves]

Re: NVT - Navitas

So are these 1 year programs? With 3 semesters per year?

The student enrolment numbers in the last 3 semesters (globally for University Programs) were 50k. And these UPs are about 75% of EBITDA before corporate costs. So they potentially lost say 7-8% of students (albeit most profitable ones due to scale of the campus). So say 15% hit to EBITDA of $120m so $18m impact. That leaves group EBITDA of $125m.

Looking at the SIBT website they are generally "pathways" programs that substitute as the 1st year of a university course. They are 1 year on average, and can range between 2 and 4 semesters (there are also advanced diplomas etc). Fees can range between $25k-$50k depending on the course, whether it's a domestic or international student, and how long the course lasts.

By the way, to add to my earlier comment of SIBT having 3,160 students: NVT's website for SIBT says 3,600 students. Another part of the MU SIBT website says 3,200. So the total figure is around there some where.

 

[McLovin]

Re: NVT - Navitas

I wonder if this decision by Macquarie has anything to do with the budget measures released recently?

That was my first thought. There was a ban on full fee domestic undergrads from 2008, iirc. Feeder colleges were a good way to get around this prohibition and at the end of it you could offer a weaker student a CSP. Maybe if the new uni laws have removed this and reduced Macquarie's need for feeder students and instead they'll just target full fee paying domestics and the same internationally?

I agree with ROE's sentiments too. These guys are more than just bums in classrooms, the biz model and their strength is about getting them in there. The strength is in marketing.

 

[Ves]

Re: NVT - Navitas

I agree with ROE's sentiments too. These guys are more than just bums in classrooms, the biz model and their strength is about getting them in there. The strength is in marketing.

Do you think that it would be impossible, or in fact unrealistic for the more prestigious local universities, to replicate the marketing strength of a firm like Navitas, due to their scale? Is it something that would be far too painful for them to fund in the short to medium term, for an uncertain pay-off long-term? Macquarie Uni obviously do not think so... and where there's one there are always imitators who just do it because their competition is doing it. As you said, the change in legislation, may be enough incentive to convince some of the better funded / more profitable universities to become more vertically integrated.

I'm playing devil's advocate. It helps me ponder.

 

[skc]

Re: NVT - Navitas

So say 15% hit to EBITDA of $120m so $18m impact. That leaves group EBITDA of $125m.

A macquarie research note is saying the impact is likely to be ~$31m at the EBITDA level. So a 25% hit

The bounce trade today seems to have stalled for now.

Actually I think the situation is more similar to BRG and ORL when they lost a huge chunk of their business overnight. The market in those instances were able to brush off the price slide in a few months' time. But longer term, the performance of BRG and ORL have really diverged.

Which path will NVT take?

 

[Ves]

Re: NVT - Navitas

A macquarie research note is saying the impact is likely to be ~$31m at the EBITDA level. So a 25% hit

Any chance you could send this to me?

 

[McLovin]

Re: NVT - Navitas

Do you think that it would be impossible, or in fact unrealistic for the more prestigious local universities, to replicate the marketing strength of a firm like Navitas, due to their scale?

The prestigious universities in any western country don't need NVT, but let's face it, NVT doesn't do pathway programs into prestigious universities. Macquarie was referred to as "the Paddock" by lecturers back when I was at uni. They target second and third tier universities who don't have the brand or the marketing budget to go out scouting enrolments. For every Macquarie, there's ten other UNE/Southern Cross/Notre Dame/University of Kentucky etc.

As you said, the change in legislation, may be enough incentive to convince some of the better funded / more profitable universities to become more vertically integrated.

It could, but remember (as I know you know) NVT is an international education provider not just Australia.

Here's a list of campuses with contract renewals. There's Adelaid coming up, so it'll be interesting to see if this is a one off or a change in thinking in the industry. U Adelaide is the only "presitigious" university that they have a contract with.

 

[ROE]

Re: NVT - Navitas

Do you think that it would be impossible, or in fact unrealistic for the more prestigious local universities, to replicate the marketing strength of a firm like Navitas, due to their scale? Is it something that would be far too painful for them to fund in the short to medium term, for an uncertain pay-off long-term? Macquarie Uni obviously do not think so... and where there's one there are always imitators who just do it because their competition is doing it. As you said, the change in legislation, may be enough incentive to convince some of the better funded / more profitable universities to become more vertically integrated.

I'm playing devil's advocate. It helps me ponder.

Hard to know, we all have to just based decision on our knowledge and common sense and stand by your conviction until the market proven you wrong... it could go either way

NVT has direct access to stream line student immigration and that is some serious benefit for someone who say from China who want a ticket to go to Australia to study.

Everyone who goes against NVT has to replicate their network, marketing and process ... all this of course can be done but at what cost and what return to those who wish to take this task on themselves.

In say 5 years we will know if NVT has a durable moat that other cant replicate with success and by that time if it is proven they are the FLT of Education the price wont be cheap but forever trades at a premium

I think the risk and reward is justified with NVT

 

[ROE]

Re: NVT - Navitas

The prestigious universities in any western country don't need NVT, but let's face it, NVT doesn't do pathway programs into prestigious universities. Macquarie was referred to as "the Paddock" by lecturers back when I was at uni. They target second and third tier universities who don't have the brand or the marketing budget to go out scouting enrolments. For every Macquarie, there's ten other UNE/Southern Cross/Notre Dame/University of Kentucky etc.
View attachment 58617

you are spot on, student wishing to take on higher education with NVT really after a ticket to migrate and they will go with someone who can easily get them there with the network and support in place.

I am a guy in China I have 2 choices go with NVT or go with some lone warrior ... a simple decision really

 

[skc]

Re: NVT - Navitas

The bounce trade today seems to have stalled for now.

Now trading below the open and looking to tag the day's low again. NOT what I expected.

Would the universities now have better leverage to negotiate with NVT when contract is up for renewal? It seems the relative power could shift.