MoneyTalks: This educational stock could profit from the return of international students to Australia
Taylor Collison has a Speculative Buy recommendation on education stock, Academies Australasia Group (ASX:AKG), with a 40c price target in 12 months (versus current share price of 27c).
The $35m market capped AKG is a Higher Education and VET (Vocational and Educational Training) provider.
Revenue is generated from the provision of tuition of predominantly international students. The business operates 17 licensed higher education colleges throughout Australia, and one in Singapore.
The Australian tertiary education sector can be categorised into three sectors: VET, higher education, and English Language Intensive Courses for Overseas Students (ELICOS).
These three sectors are large, complex and growing. Higher education accounts for the lion’s share of Australia’s international student arrivals, with 47% of all overseas student enrolments registering higher education courses in 2020.
Taylor believes that continued return of international students to Australia will provide educational providers like AKG with a major tailwind.
AKG’s enrolled student base is heavily skewed to international students, with 75% coming from overseas to undertake study at AKG’s colleges.
“The return of international students post COVID-19 provides a near-term tailwind for student enrolment growth, a key driver of AKG’s earnings,” said the note out of Taylor Collison.
“We believe AKG is in a strong position to capture the continued influx of international students given its compelling course range, strong agent relationships; and a high-quality product.”
Taylor also says that through its newly leased Goulburn Street premises, AKG has significantly expanded its student capacity and course offering.
“Starting in 2H24, we expect courses at the Goulburn Street premises to generate revenue upon the continued return of international students.
“The majority of courses to be delivered at Goulburn Street are high margin, and given AKG’s relatively fixed cost base, should generate operating leverage as enrolment numbers grow,” said the broker.
In the Australian tertiary education market, AKG has built a valuable position and Taylor believes this is not reflected in its current market capitalisation.
“To realise this embedded value, it is conceivable that AKG enters into a part sale and joint venture agreement with a global sector participant. Any transaction would likely occur at a material premium to that ascribed by AKG’s current equity value,” said Taylor.
In the longer term, Taylor believes that Australia’s competitive advantage in the tertiary education is sustainable, and will always attract overseas students especially from Asia.
Taylor cites Australia’s established and globally regarded education sector, favourable student pricing, physical proximity to Asian markets, as well as attractive working rights.
“These factors provide Australian tertiary education institutions, including AKG, with a long-term tailwind for growth,” said Taylor Collison.
Meanwhile, Taylor Collison has slapped an Outperform rating on MaxiPARTS (ASX:MXI), with a $3.40 price target (versus a $2.50 current price).
MXI’s core business is the supply of aftermarket truck and trailer parts, consumables, and accessories in Australia. Services provided include parts interpreting and procurement. The company thus runs a fully integrated distribution network that allows it to hold stock close to its customers.
The $140m market capped company commenced trading on the ASX in May 2013, but has been operating for more than 30 years.
Several strategic acquisitions have accelerated product and geographical expansion over this period.
For example in June this year, MXI acquired Förch Australia, a wholesaler of automotive supplies and workshop consumables. And in November, it acquired IP, which supplies general and heavy-duty truck and trailer parts to the mining and transport industry across WA.
Meanwhile, data shows that the commercial vehicle aftermarket in Australia is worth more than $2bn per annum.
According to Taylor, MXI trades at an appealing 10.1x our FY25 EPS, a substantial discount to peers and 47% discount to its nearest listed competitor, Supply Network (ASX:SNL).
“Our estimates assume an effective tax rate of 30%, but MXI has at least 2.5 years of carry forward tax losses.
“MXI has invested ~40% of the mCap over the past few years with Truckzone, Förch and IP, which we are expecting will step change the earnings growth trajectory over the medium-term, and lift the ROIC from high single digits as at FY23, to low double digits by FY26.
“This should translate into valuation re-rate,” said the broker.
Further, Taylor Collison believes that MXI could be a candidate for a buyback in the next 18-24 months if the valuation multiple remains depressed.
“A special dividend would not be a tax effective distribution (without pre-paying tax) given its franking account balance, and 2.5yr coverage in carry forward tax losses,” said the note from the broker.
The views, information, or opinions expressed in the interview in this article are solely those of the broker and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.