Brazil's Declining Student Pool And Digital Rivals Will Hurt Enrollment

Key Takeaways

• Declining youth demographics and shifting student preferences toward flexible, non-degree credentials threaten long-term enrollment and revenue stability.
  
• Dependence on government funding and intensifying digital competition put pressure on margins, market share, and overall profitability.
  
• Strong enrollment growth, expansion in high-demand medical programs, and operational efficiencies position the company for sustainable revenue, margin, and cash flow improvement.

Catalysts

Develops and manages activities for on-campus and distance-learning undergraduate, graduate, and professional training courses and other education-related areas in Brazil.

• Demographic changes including Brazil's falling birth rates are expected to steadily reduce the pool of potential university-age students, putting persistent downward pressure on enrollment volumes and future revenue for Ser Educacional even as current results appear robust.
  
• The rapid adoption of alternative learning models such as micro-credentials, vocational training, and online certificates is likely to erode demand for traditional university degrees, threatening both tuition pricing power and long-term earnings growth as students increasingly seek non-degree pathways.
  
• Heavy dependence on government-funded student financing programs exposes Ser Educacional to significant policy and budget risks; reductions in funding or tightening of eligibility could sharply curtail student intake and collection rates, directly impacting revenue predictability and margin stability.
  
• Intensifying competition from larger educational groups and international entrants-many with stronger digital platforms-may lead to sustained market share loss for Ser Educacional, particularly if the company's digital transformation lags behind peers, driving margin compression and lower net income.
  
• Structural labor market shifts, with employers placing less value on formal degrees and more on flexible, skills-based credentials, may undermine Ser Educacional's ability to maintain average ticket prices and occupancy rates, resulting in long-term deterioration of both top-line growth and profitability.

Ser Educacional Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ser Educacional compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ser Educacional's revenue will grow by 5.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.9% today to 8.5% in 3 years time.
• The bearish analysts expect earnings to reach R$207.8 million (and earnings per share of R$1.64) by about August 2028, up from R$60.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.4x on those 2028 earnings, down from 17.7x today. This future PE is lower than the current PE for the BR Consumer Services industry at 9.8x.
• Analysts expect the number of shares outstanding to decline by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 22.77%, as per the Simply Wall St company report.

Ser Educacional Future Earnings Per Share Growth

Risks

• Sustained double-digit growth in enrollments for on-site and hybrid learning, along with a 13% increase in blended learning students and 27% growth in the medical student base, suggest that Ser Educacional is still effectively capturing secular growth trends in Brazilian higher education, which could drive continued revenue and earnings growth.
  
• Expansion in high-demand medical programs, with accredited places increasing from 521 to 2,001 annual openings and a strategy to mature these courses over time, positions the company for a higher mix of premium tuition and stronger margin profiles, supporting both top-line expansion and profitability.
  
• Enhanced operational efficiency, with a notable reduction in net debt to adjusted EBITDA ratio (falling from 1.93 times to 1.24 times) and strong operational leverage, indicates the company is improving its cost structure and reducing financial risk, which may lead to higher net margins and improved earnings resilience.
  
• Strategic focus on optimizing campus occupancy through expansion in markets with established brand recognition and low-cost structures-such as opening new units in high-demand micro regions-suggests ongoing potential for margin improvement and stable cash generation.
  
• Successful implementation of student financing programs and increased payment punctuality have boosted operational cash flows and EBITDA-to-cash conversion, with post-CapEx cash flow up 730% year-over-year, enhancing liquidity and supporting long-term investments that may underpin future profitability and share price appreciation.

Valuation

• The assumed bearish price target for Ser Educacional is R$5.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ser Educacional's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$14.0, and the most bearish reporting a price target of just R$5.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be R$2.5 billion, earnings will come to R$207.8 million, and it would be trading on a PE ratio of 5.4x, assuming you use a discount rate of 22.8%.
  
• Given the current share price of R$8.4, the bearish analyst price target of R$5.0 is 68.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.