Medical Program And Digital Learning Will Transform Long Term Value

Key Takeaways

• Expansion of premium medical programs and strong hybrid/online enrollment growth are driving margin improvement and positioning for sustained topline and earnings gains.
  
• Campus optimization, improved collections, and accelerated deleveraging are boosting free cash flow and financial flexibility for reinvestment and long-term value creation.
  
• Heightened competition, regional and course concentration, rising default risk, and heavy dependence on government aid expose Ser Educacional to multiple pressures on revenue and earnings stability.

Catalysts

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

• The rapid expansion of Ser Educacional's medical school program-annual student openings rose from 521 to 2,001 and new accreditations are already filling up quickly-positions the company to capture higher-margin revenue streams from in-demand, premium-priced health programs as these student cohorts mature, bolstering revenue and net margins over coming years.
  
• Strong growth in hybrid and online/blended learning enrollments (with nearly 15% YoY growth in hybrid and 13% in blended learning) leverages Brazil's expanding digital infrastructure and supports scalable, cost-efficient delivery, which is expected to drive future enrollment gains and improved operating leverage, positively impacting both topline growth and margins.
  
• Strategic optimization of campus operations-including focusing real estate assets on high-demand urban micro-regions with brand recognition, and expanding with lower-cost, modular campuses-enhances addressable market access and allows further expansion with controlled CapEx, supporting margin improvement and underpinning sustainable long-term EBTIDA growth.
  
• Ongoing improvements in student payment punctuality, lower default rates, and tighter collection policies are reducing bad debt expenses, increasing average ticket values, and directly enhancing free cash flow and earnings quality, enabling further deleveraging and potential for sustained dividend payouts.
  
• Accelerated deleveraging and robust cash generation-achieving a net debt to adjusted EBITDA ratio drop from 1.93x to 1.24x and reinstating dividends-create significant financial flexibility for reinvestment, selective acquisitions, and organic growth, which is likely to compound future earnings growth and support higher valuation multiples.

Ser Educacional Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ser Educacional's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 9.9% in 3 years time.
• Analysts expect earnings to reach R$258.0 million (and earnings per share of R$1.73) by about August 2028, up from R$60.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as R$171.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 17.8x today. This future PE is lower than the current PE for the BR Consumer Services industry at 10.0x.
• 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 22.78%, as per the Simply Wall St company report.

Ser Educacional Future Earnings Per Share Growth

Risks

• Increased competitive pressure in distance and hybrid education, as mentioned with competitors using aggressive price discounts to attract students, could force Ser Educacional to lower tuition fees or offer more discounts, putting downward pressure on revenue growth and average ticket over time.
  
• Heavy reliance on health and medicine courses for future enrollment and margin expansion presents concentration risk; if regulatory barriers, changes in medical education policies, or shifts in student demand occur, it may materially affect revenue growth and earnings stability.
  
• Ongoing increase in provisions for doubtful accounts (PDD), particularly due to higher digital education dropouts and more lenient payment policies, suggests rising student default risk which could negatively impact net margins and cash generation despite current enrollment gains.
  
• Expansion strategy remains highly focused on small
• and mid-sized underserved Northeast and North regions; this regional concentration exposes the company to local economic downturns, political shifts, and demographic stagnation which could cap revenue growth, increase earnings volatility, and limit valuation multiples.
  
• Dependence on government student aid programs such as PROUNI and FIES introduces medium
• to long-term regulatory risk; changes in policy, funding delays (as acknowledged with a R$40 million delay in FIES cash flow), or tightening eligibility could increase bad debt, reduce enrollment, and harm operating cash flow.

Valuation

• The analysts have a consensus price target of R$10.286 for Ser Educacional based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be R$2.6 billion, earnings will come to R$258.0 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 22.8%.
  
• Given the current share price of R$8.42, the analyst price target of R$10.29 is 18.1% 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.