Education stocks go to the top of the class

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Macquarie Securities expects big things from several companies in the education field, assigning ‘outperform’ recommendations to 3P Learning, IDP Education and Navitas.

All three companies, which are included in Macquarie’s emerging leaders coverage, have international operations and are racking up double-digit growth.

3P Learning develops online learning “spaces”, with names like Mathletics, Spellodrome and Reading Eggs, for use in schools. The educational tools are aligned to primary and high school curricula and incorporate reporting systems for teachers.

Macquarie expects double-digit growth in earnings per share in 2017/18, underpinned by cost reductions

3P Learning is trading around $1.05 a share and Macquarie expects it to reach $1.25 over the next 12 months.

“We are forecasting a material reduction in debt levels to be virtually debt free by the end of 2017/18. The revenue trajectory should improve in FY 18 and subscriber growth will be key,” Macquarie says.

“3PL offers attractive exposure to strong tailwinds in the EdTech space, which is under-penetrated and expected to grow at 17 per cent a year over the next few years.”

Navitas, which has its financial year-end in February, is “highly leveraged to a strong and long-term international student growth thematic.”

The company provides education services in partnership with 120 institutions in 31 countries.

A recent hiccough was the loss of a Macquarie University contract, which worried investors.

However, Macquarie points out that the company has strung together a run of seven consecutive renewals generating strong momentum.

Navitas is trading around $4.90 a share and Macquarie has set a 12-month price target of $5 a share.

IDP Education, which has its financial year-end in December, operates in the area of student placement – assisting international students in gaining access to Australian education. Operating since 1969, it has 89 international student placement centres.

It also does English language proficiency testing, using a widely recognised product called IELTS.

Maquarie is forecasting that IDP’s net profit will increase by 17 per cent this year, from $24.1 million in 2016 to $44.2 million in the year to December. It says the company is positioned to deliver double-digit growth in 2018 as well.

Macquarie says: “In our view, recent changes to migration policies in Australia are unlikely to affect post-study work rights for university graduates. However, the changes may affect IELTS testing volumes.”

Macquarie’s view is that IDP provides direct exposure to the global growth in international education and the strong demand from people looking for study and work in English-speaking destinations.

IDP is trading around $4.90 a share and Macquare has set a 12-month price target of $5.13 a share.

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