When asked to name the country’s top export industries many of us may struggle to think past our huge mining sector. But we would be overlooking a key export industry where Australia has an edge: Education. Education-related travel is our fourth biggest export industry, generating earnings of $15 billion a year (iron ore, coal, and gold take out the top three spots).
Australia has three strong competitive advantages in providing international education: an internationally recognised and high-quality ‘Western’ education system; close proximity to the booming middle classes of Asia; and graduate employment opportunities that are the envy of the Western world.
Academies Australasia (ASX: AKG) has leveraged all of these advantages to grow strongly over the past decade, both organically and through intelligent acquisitions. For the last three years it has grown both revenue and net profit at a compound annualised rate of over 25 per cent.
A solid report card
Academies Australasia offers a broad range of education services that run the gamut of international student education: English language; vocational training; and higher education. In the last five years, the company has expanded from around 2000 to more than 10,000 students, including new colleges located in Singapore and Malaysia.
In late June, Academies announced the acquisition of Spectra Training for $15.7 million at an EBITDA multiple of 3.8 times. Spectra specialises in workplace-based training with approximately 4000 students across all six states in Australia. Unlike most of Academies’ existing businesses, Spectra is focused on domestic students – a sector that could be particularly well positioned to benefit from an education reform.
Singapore and beyond
Despite Australia’s advantages, there are still a lot of barriers that prospective students need to overcome to study here. Visa restraints, currency concerns, and distance from family members all conspire against the would-be student.
The management team at Academies Australasia have recognised these challenges and arrived at an elegant solution. If you can’t bring the student to the quality education, bring the quality education to the student!
In 2009 the company entered the Singapore market with the intention to use it as a launching pad into the rest of Asia. The Singapore-based college provides an Australian quality education, in a location that is closer to the student’s home base, and at a lower overall cost to the student.
During the last financial year the total revenues of the Singapore college grew 21 per cent to $3.6m. With the booming middle classes of Asia seeking out the best education that they can, this is a business area that is poised for growth.
The rise of the aggregators
Academies Australasia is well positioned to be the ‘lead aggregator’ in the international education sector and has a long history of growing via astute acquisitions.
The education industry in Australia is highly fragmented. There are almost 5000 registered training organisations that offer vocational education and over 11,000 that offer language training and other educational services. In other words, there are a lot of inefficient education providers that provide ample opportunity for Academies Australasia to continue aggregating smaller players into its operations.
By bringing its management expertise to newly acquired companies such as Spectra, Academies Australasia is able to significantly boost operating performance. The company also benefits from the scale advantages that are realised by consolidating administration and overhead costs.
At the time of its sharemarket listing in 2004, Navitas (ASX: NVT) was the lead aggregator of for-profit educators in Australia. These days Navitas is a giant, with a global presence and a market capitalisation of $1.95 billion. Consolidating small colleges is no longer worth its time – thereby creating an opportunity for Academies Australasia to take the lead.
Foolish takeaway
Academies is well positioned to take the mantle of lead aggregator of for-profit education institutions in Australia as illustrated by the recent acquisition of Spectra. The education reforms being proposed could provide even more opportunities for Academies to purchase sub-scale providers at low multiples and enhance operations. If Academies keeps doing its homework then it could soon become the share market’s next star pupil.
AKG Price at posting:
$1.28 Sentiment: None Disclosure: Held
(20min delay)
