Acquisition Of Touhula And Adult Education Expansion Will Strengthen Future Prospects

Key Takeaways

• Strategic international expansions, including in Germany and Finnish acquisitions, are expected to enhance revenue and profitability, driving future growth.
  
• Strong performance in Adult Education and adaptation to Swedish voucher changes highlight potential sustained revenue growth and operational stability.
  
• Reliance on retroactive revenue and acquisitions risks future earnings stability amid potential margin pressures and inconsistent financial performance across segments.

Catalysts

Operates as an independent education provider in Sweden, Norway, the Netherlands, and Germany.

• AcadeMedia's strategic expansion in Germany, including the launch of the 100th preschool, and growth in international operations are expected to enhance revenue and profitability, contributing significantly to future growth.
  
• The acquisition of Touhula in Finland and the increasing international footprint are projected to boost revenue, with international operations accounting for 27% of growth in the current quarter.
  
• The improvements in Adjusted EBIT margins across all segments, driven by better cost control and increased retroactive revenues, suggest potential enhancements in net margins and future earnings.
  
• The continued strong performance of the Adult Education segment, benefiting from high unemployment and its resultant demand for vocational training, positions AcadeMedia for sustained revenue growth in this segment.
  
• The successful adaptation to voucher system changes in Sweden and anticipated stability in school vouchers, despite inflation, provide a stable revenue base for future operations and growth.

AcadeMedia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AcadeMedia's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 5.4% in 3 years time.
• Analysts expect earnings to reach SEK 1.2 billion (and earnings per share of SEK 10.84) by about April 2028, up from SEK 723.0 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 9.5x on those 2028 earnings, down from 10.9x today. This future PE is lower than the current PE for the GB Consumer Services industry at 18.4x.
• 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 8.06%, as per the Simply Wall St company report.

AcadeMedia Future Earnings Per Share Growth

Risks

• The reliance on retroactive revenue adjustments and compensations from municipalities introduces uncertainty and suggests potential volatility in revenue streams, which could impact future earnings stability.
  
• The school voucher increases in Sweden are estimated at just over 2.5%, which might not fully cover potential rises in salary expenses, thereby putting pressure on net margins if salary revisions exceed expectations.
  
• The fluctuating adult education segment's revenue, tied to unemployment rates, may lead to inconsistent earnings and profitability, impacting future financial performance in times of lower unemployment.
  
• The temporary nature of favorable retroactive revenues in Germany points to potential variability in revenue and margin sustainability, affecting profitability projections.
  
• The financial results are partially driven by acquisition-related growth, which may not be replicable in future periods, presenting a risk to maintaining the current revenue and profit growth trajectory.

Valuation

• The analysts have a consensus price target of SEK91.0 for AcadeMedia 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 SEK21.8 billion, earnings will come to SEK1.2 billion, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of SEK79.4, the analyst price target of SEK91.0 is 12.7% 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.