Correct Spadedeuce, the trust account money is 'pre-paid course tuition fees' and cannot be touched until the student commences classes. To this extent is is 'separate' from normal operating cashflows, and for this reason one has to be careful when counting this as "cash at bank". It's not readily available to the company, however it does provide one with a high level of confidence about the level and value of the international student enrolments that the company has received. A company that's steadily growing its international students' business will have a steadily increasing amount of cash in its trust account, and this cash will be accessible by the company when the students start their study. This is a key figure for companies like AKG and RDH. At 30 June 2015 AKG had $5.3m in the trust account (refer Note 9 to the Accounts) and total cash of $7.1m. At 31 December 2015 it had total cash and cash equivalents of $8.7m, a 22% increase. Unfortunately I cannot establish from the half year report how much of this was in the trust account, or what amount was attributable to the Rights Issue. By way of comparison, I note that RDH's cash position fell 54% over the same period, although part of this fall can be explained by the investments it has made in establishing its outstanding new Melbourne CBD campus and other businesses ($1.6m).
The basis of valuation of individual businesses is a market based multiple of earnings approach, based on industry feedback and some educated guesswork about the profitability of the various colleges. For example, the Rights Issue prospectus last year disclosed (see p. 14) the amount paid to the STA vendor for the 2nd tranche payment (out of 3 tranches), and working backwards you can work out that the STA business made over $1.6m of EBIT in FY 15. On a simple 4x - 5x EBIT multiple that's $6.4m - $8.0m of current valuation. I'm certain that this business would be very easy to sell because of its outstanding reputation, excellent scope of registration, good State (VTG) and Federal (VFH) contracts and potential for future growth out of its newly opened Melbourne CBD campus (including the potential for CRICOS driven growth in the future).
It's likely that the bank has a fixed and floating charge over all of the assets of the company, which is quite normal, which simply means that the company would need to use the proceeds from any sales to pay down debt, unless otherwise agreed by the lender.
AKG Price at posting:
23.0¢ Sentiment: Hold Disclosure: Held
(20min delay)
