Expanding High-Demand Courses Will Strengthen Future Position

Key Takeaways

• Focus on higher-margin courses and efficient campus utilization is expected to boost revenue and stabilize margins.
  
• Expanding in-demand course offerings aligns with trends, potentially enhancing future revenue streams and market position.
  
• Regulatory changes reduced international student enrollments, affecting revenue, while reliance on vocational courses and cost-cutting measures present risks to revenue and margins.

Catalysts

Provides educational services in Australia, Europe, and South America.

• Strong growth in vocational student enrollments, particularly international students in management, hospitality, and healthcare, is expected to boost revenue by shifting the focus to higher-margin courses.
  
• The integration of International House students has led to improved campus utilization by approximately 20 percentage points with no significant additional costs, which should enhance operational efficiency and support margin stability.
  
• $7 million in projected annualized cost savings for FY '26, achieved through property rationalization, cost reductions, and operational efficiencies, are expected to significantly improve net margins and earnings.
  
• Expanding course offerings in high-demand areas, such as marketing automation, e-commerce, and IT, positions NextEd to align with industry trends and potentially increase future revenue streams.
  
• The strategic audit and readiness for industry consolidation signal potential future growth opportunities, which could positively impact long-term revenue and market position.

NextEd Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NextEd Group's revenue will grow by 3.5% annually over the next 3 years.
• Analysts are not forecasting that NextEd Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate NextEd Group's profit margin will increase from -39.7% to the average AU Consumer Services industry of 7.4% in 3 years.
• If NextEd Group's profit margin were to converge on the industry average, you could expect earnings to reach A$8.1 million (and earnings per share of A$0.04) by about July 2028, up from A$-39.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.3x on those 2028 earnings, up from -1.2x today. This future PE is lower than the current PE for the AU Consumer Services industry at 15.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

NextEd Group Future Earnings Per Share Growth

Risks

• Regulatory changes have negatively impacted international student enrollments, reducing revenue and profitability year-on-year. This decline in enrollments directly affects revenue from English language courses, which were down by 46%.
  
• There is significant reliance on vocational courses to offset the decline in English language enrollments. Although the shift to higher-margin courses helped maintain gross margins, the increased reliance on such courses presents a risk if demand shifts or competition increases, affecting revenue stability and margins.
  
• The financial results were affected by a $5 million impairment charge in the Technology & Design segment, indicating underperformance and an uncertain outlook, which could continue to affect future earnings.
  
• Operating cash flow was positive, yet overall revenue declined by 21%, partly offset by cost reductions. Continued pressure on top-line revenue growth due to external factors, such as governmental policy changes, indicates potential ongoing strain on net profits.
  
• While there were $7 million in planned annual savings through cost management, primarily in staff redundancies, these are one-off measures. If market conditions remain challenging, future cost reductions may be more difficult to achieve, potentially impacting net margins.

Valuation

• The analysts have a consensus price target of A$0.325 for NextEd Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$109.8 million, earnings will come to A$8.1 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 8.2%.
• Given the current share price of A$0.2, the analyst price target of A$0.32 is 36.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.