Friday, 24 February 2023

MoneyTalks: Two potential big buys in the education space

by Berkeley Lovelace

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Pac Partners head of research Stephen Scott.


What’s hot right now?

Scott has his eyes on the education sector for a few reasons.

He believes the sector is entering a medium – longer term sustained growth pattern which is under-appreciated by the market.

“Short-term growth drivers include the post-Covid return of students which we believe has only recovered to about 60 or 70 per cent of pre-Covid levels based on our detailed assessment of ABS statistics,” he says.

“This returning student cohort is feeding into the introductory courses such English and then some of these students tend to look for vocation and university style courses after the English course, which is a positive.

“Improved visa processing is also structurally helping the sector.”

Australia’s warmer climate and lower AUD makes it an appealing destination for key markets in Southeast Asia, Scott says.

“We are natural English speakers in well-regulated industry, in an economy with virtually full employment with high minimum wage rates,” he explains.

“These are structural advantages that endure well beyond the post-Covid return of students.”

Scott says education may form an important role in a diversified portfolio as it moves to different economic cycles compared to many other listed stocks.

“The Education sector’s share of ASX market cap is tiny compared to the sector’s GDP weight.

“This is explained by the large government/public sector – we are systematically happy to back private ASX players to find niches and outcompete the public sector, particularly in the foreign student market in the medium to longer term.”

What trends are you noticing in the sector?

“Student desire to come to Australia is stronger than ever but tentative bureaucratic visa processing has resulted in some delays, particularly at the university level,” he says.

“Regulation has created a much greater barrier to entry for new providers and improved the quality of all existing players while industry consolidation will continue to play out.

“Smaller, single courses in rundown premises will find life harder as students demand quality facilities and experienced teachers before handing over their hard-earned cash.”


Top picks

BUY: NextEd Group (ASX:NXD)

NXD provides education services in Australia, Europe, and South America.

The company hit record numbers of new international student enrolments into English and vocational courses in the December 2022 quarter, with numbers 350% higher than the prior corresponding period.

NXD said this was partly due to its strong supply chain relationships with international student recruitment agents, unwavering focus on providing quality learning experiences for students, and increasing market share in an environment where competitor numbers have declined by at least 20%.

Shares in NXD are up 25.86% year to date.

Scott gives NXD a $1.50 price target – “we look at our forecasts upon the upcoming result,” he says.

“The recent guidance was in line with our estimate for FY23.”


BUY: EDU Holdings (ASX:EDU)

EDU owns and operates tertiary education businesses focused on the health and community services fields of study.

It has two wholly owned subsidiaries – Australian Learning Group (ASX:ALG), a vocational education and training provider operating in Brisbane, Melbourne, Perth, and Sydney, and Proteus Technologies, trading as Ikon Institute of Australia.

Ikon is an institute of higher education, servicing both the domestic student and international market.

Scott has a 21.5c target on EDU and again, will look at forecasts upon the coming result.



The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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