Analysts await each yearly budget to gauge which ASX stocks could benefit, as well as those that may suffer from cuts. In recent years the exploding costs of health care have led to cuts in both the Pharmaceutical and Medical Benefits Schedules, and this year is no exception.
One item of interest to long term investors in this year’s budget was the $12 million earmarked to support our National Strategy for International Education 2025. The Strategy is a newly released 10 year plan for enhancing what has become an important contributor to our economy. Surprising as it may seem, education-related travel expenses are now our third largest export and the largest service export category.
Education-related travel services include everything foreign students spend – such as finding a place to study, tuition, living arrangements, shopping, entertainment, and transportation. At the end of 2013 the education exports stood at $14.5 million and ranked fourth among Australian exports. The following table shows the results for 2015.
English has become the de facto international language of business and for some time international students have been enrolling in English language training in the United States, the United Kingdom, Australia, Canada, and New Zealand. Many students remain for college and university programs and beyond.
Australia may rank behind the US and the UK in terms of number of students, but we have some distinct advantages of late. First there is the declining dollar, making tuition and living expenses more attractive here. Second we are in close proximity to the Asian countries flooding the English language training and advanced education markets.
International student enrollment is now at all-time highs in Australia, eclipsing 2009 levels following three successive years of declines, as the following graph displays.
There are four ASX stocks operating in this sector. Although each has different business models, it appears all education stocks suffered from the collapse of once well-regarded vocational training provider Vocation Ltd (VOC) last November and ongoing investigations into the practice of other companies in the vocational training sector. The following table includes all four stocks that could see a long term boost from the government’s increasing commitment to furthering international education here in Australia.
Despite its exposure to the international student market Academies Australasia Group Limited (AKG) right now looks a stock for punters. The company has been plagued by a weakened economy in Western Australia, the disappointing performance of a key acquisition (Spectra Training), and the glare of government regulators across the sector. The Full Year 2015 results ending in June were disappointing. Academies had shed all non-education related businesses by the end of 2013 and proceeded to expand its exclusive focus on the domestic and international education market through a series of acquisitions. Revenues in the following year were up due to the acquisitions, not to organic growth. For 2015 the company reported a 66% fall in EBITDA (earnings before interest, taxation, depreciation and amortisation).
In addition to the economic havoc caused by the troubles of the mining sector in Western Australia, Academies saw changes in recruitment policies in some of its subsidiaries leading to enrollment drops and funding cutbacks from state governments. Perhaps worst of all, management claims the questionable practices by training organisations and brokers led to adverse publicity and further lowered enrollments.
For those with a longer term outlook AKG operates 18 colleges across Australia and in Singapore. Offerings are extensive, ranging from senior high school and English language programs for foreign students to certificate and diploma programs and coursework leading to a Bachelor’s or Master’s degree. In addition, the company offers “pathway programs”, an attractive option for international students as these programs assist students to move into other accredited Australian Universities upon completion of diploma or certificate programs.
A five year price chart for AKG suggests the strategic shift to a strictly educational company may have been working. The share price declines coincide roughly with the news of state government investigations into practices in the vocational training sector. Here is the chart.
From the perspective of shareholder returns, Redhill Education (RDH) tops the others by a considerable margin, with a total shareholder return over three years of close to 50%. The company’s five year performance is stellar as well at about 41%.
Redhill has been in business since 2006 and began trading on the ASX in 2010. The company has student agencies operating under the Go Study Australia banner in France, Spain, and Italy from which it recruits over 3000 students a year to one of its four campuses in Australia. Go Study Australia helps the students find the appropriate vocational training, English language, or University study anywhere in Australia. The service is free of charge to students with Redhill receiving a commission from the schools where the students are placed.
In Australia Greenwich College offers English Language Intensive Courses for Overseas Students (ELICOS) and as of 2015 also offers vocational certificate and diploma programs. Redhill’s Academy of Information Technology provides training in digital design, multimedia, gaming, and business information technology; and the International School of Colour and Design (ISCD) which offers training in interior design.
Redhill added new technology offerings in 2015, including Coder Factory Academy (CFA), described as a “boot camp” for coders; and the Left Bank, offering VET diplomas and certificates. On 24 September the Full Year 2015 results showed a 65% decline in net profit after tax (NPAT) and the share price has been falling ever since. Here is the chart.
Navitas Limited (NVT) is international in scope with the largest range of educational offerings of university programs, vocational and technical education, and English language programs. The University Programs division uses a “pathway” model to provide remedial work needed for students to gain entry into a fully accredited university. The pathway model is in place in the US, Canada, the UK, and New Zealand. Navitas hosts a Pathway College on the campus of each of its partner universities around the world.
Navitas came on to the ASX in 2004 with an opening price of $2.01. Navitas, Redhill, and Academies all were tainted by the bad brush of purported unscrupulous practices from providers like Vocation Limited and Intueri Education, since all three also offer vocational training offerings. Here is a five year chart for NVT.
However, Navitas has remained profitable during this period, increasing revenue and profit in each of the last three Fiscal Years. Over ten years the company has a respectable rate of total shareholder return of 14.8%. Navitas has a current dividend yield of 3.7%, fully franked.
IDP Education (IEL) is primarily in the student placement business, although the company does operate English language schools in Thailand, Vietnam and Cambodia. Seek Limited (SEK) was a 50% owner of IDP before the company went public in December 2015. The share price has been on the rise since.
IDP operates about 80 student placement centres in 30 different countries where prospective international students are matched to the best fit school from IDP’s extensive network of partner schools in Australia, the US, the UK, Canada, and New Zealand. In the US, IDP handles the entire placement process international students into more than 100 universities and community colleges.
Lower overhead costs are an obvious advantage of operating primarily as a placement service, not a direct provider. There is another compelling reason to consider investing in this company and that is its ownership of the International English Language Testing System (IELTS). To gain entry into an English language university or college a prospective student must demonstrate proficiency in the English language, as measured by a standardized test. IELTS is one of two such tests in use around the world today. The other is TOEFL (Test of English as a Foreign Language). Generally speaking, IELTS is the preferred test for “British English”, but many schools will accept either one.
There are a reportedly more than 9000 schools around the world using IELTS scores with more than 2 million tests administered each year.