Sector financial performance:

This company, who is a degree-granting higher education institution, has been grouped into private university –higher education industry.

It seems that demand for higher private education –degree grand is still solid in the past several years but varied depending on programs. However, generally universities in this sector have experienced increasingly competition in admission. At the same time, price/economy elasticity is apparent. Due to the whole unfavourable environment for university education, many universities have to reduce tuition to stimulate enrollment and it seems it has worked for certain programs of those universities.

The direct consequence of intensive competition for some universities in this sector is the increased spending in marketing and admission. The continuingly shrinking profit resulted from competition also forced some of universities to cut programs that are not profitable. As a result of impacts described above, some of companies’ gross margin (include depreciation and amortization, rent, and marketing expenses) went down but others went up. Our data indicate those companies’ gross margins are between 17-23% with G&A as percentage of sale of 7-11%.

The typical operating margins among those companies are between 10-11%.

According to our analysis, the current companies’ enterprise price/EBI ratio is between 21 and46 with an interest/EBITDA ratio of 0-40%.

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Company performance:

It seems that the demand for this company’s education program has been weak in the past several years as indicated by both decreasing growth in tuition and student enrollments and continuing disposition, which has offsite organic increase of revenue of this company in the 2Q of 2018.

The first six months of fiscal 2018 compared with the same period of the 2017

Organic net sales (exclude currency, acquisition and disposition) increased about 2.8% (2% for 2Q) primarily due to increase of about 1.5% (1.2% for 2Q) from higher organic enrollment and increase from product mix and pricing.

The fiscal 2017 compared with 2016

Organic net sales (exclude currency, acquisition and disposition) increased about 4.8% primarily due to increase of about 2.1% from higher organic enrollment and increase from product mix and pricing.

The first nine months of fiscal 2017 compared with the same period of the 2016

Organic net sales (exclude currency, acquisition and disposition) increased about 5.2% primarily due to increase of about 2.3% from higher organic enrollment and increase of 2.8% from product mix and pricing.

Fiscal 2016 compared with 2015

Organic net sales (exclude currency, acquisition and disposition) increased about 6.1% primarily due to increase of about 2.7% from higher organic enrollment and increase of 3.2% from product mix and pricing.

Fiscal 2015 compared with 2014

Organic net sales (exclude currency, acquisition and disposition) increased about 10% primarily due to increase of about 7% from higher organic enrollment and increase of 3.4% from product mix and pricing.

Its gross margin (include depreciation and amortization, rent, and marketing expenses) went up to about 15% in 2017 from 13% since 2014 primarily due to disposition of asset which probably present lower margin. During the same time, the SG&A as percentage of sales increased by about 330 basis points due to the disposition and re-financing related expenses. Its operating margin went down by about 100 basis points to 9.6% in 2017. The trend seems to be continuing in 2018 as indicated by continuingly improved gross margin (about 17%) and operating margin (about 10%). We have seen improved cash flow from this company as it improved its margin with increased net revenue.

Stock price

This stock currently has an enterprise price/EBI ratio of 21($15). We think that its stock is being relatively undervalued considering its increasing earning.