Arowana International Limited ("AWN") - NZ Education

[steve fleming]

Initially, a back door listing of a private equity fund.

However the acquisition today essentially transforms the business into pretty much a pure-education play, dwarfing the two other much smaller investments.

"Upon completion of the acquisition, the combined Intueri and Quantum Education Groups will
become the largest PTE (private training establishment) group in New Zealand. It will have 26
campuses across the North Island and South Island

For the year ended 31 December 2013, the consolidated pro forma unaudited revenue of the
combined Intueri and Quantum Education Groups is expected to be between NZ$60m and NZ$62m
and pro forma unaudited earnings before interest and tax is expected to be between NZ$19m and
NZ$21m."

So say 18.5m EBIT (AUD) from education operations + 1.5m EBIT from other operations = $20m (AUD)

Current EV = 80m + 50 m purchase = $130m (AUD)

So trading on 6.5x historical earnings which makes it pretty cheap exposure to an attractive sector with top management.

[steve fleming]

“AWN intends to fund the Acquisition through a combination of existing cash reserves and additional debt and/or equity, which could potentially include an offer of securities at either the AWN or Intueri Education Group level (subject to applicable securities laws and the Listing Rules)”

Hmmm… wonder if this is hinting they are looking at an IPO of Intueri ? – would leave AWN with an investment in a new listed vehicle

Would fit with their PE Modus Operandi; and Arowana are very switched on operators.

Vocation (13x EBIT) , Navitas ( 22x EBIT) and AKG (9 x EBIT) are all private higher education providers all trading on nice multiples......very attractive sector with good outlook

[steve fleming]

I actually had a hair cut at one of their 'Cut Above' salon academies a long time ago - i was pretty happy with it

[mark100]

steve fleming you are quick. I picked up some of these this morning after the announcement.

Some very rough calcs of mine said they could possibly do a 'proforma' EPS in the order of 7cps with the acquisition.

That assumed:
A$2m NPAT pa for the current group excl the Education division (it did A$0.68m NPAT from Apr - Jun 2013)
Fund acquisition from A$28m debt, A$10m of existing cash and a A$17m equity raising at 50c. This would leave A$6m on hand
Group NPAT is then in the order of A$13.8m with around 200m shares on issue.
One missing part is the amount of amortisation, in any, required on the acquisition.

Against all the other education plays this looks good, but I would like to see the interim result before getting too confident

[mark100]

Well the accounts are a bit of a dog's breakfast given the short amount of time listed etc however the main points I noted was:
Underlying EBIT for FY14 should at least deliver 10-20% growth. At 15% EBIT growth that potentially gives them NPAT of around $6.5m for FY14 and EPS of almost 4cps. This implies a big second half but they say this is normal and visibility is good.

Net debt also low at $3m

Value exists even before the Quantum acquisition is included later this year

[Corporate]

Thanks Mark. My concern looking at the accounts was the cash flow statement. This HY was negative in terms of operating cash flow...

I'm going to watch this very carefully.

[steve fleming]

Thanks Mark. My concern looking at the accounts was the cash flow statement. This HY was negative in terms of operating cash flow...

I'm going to watch this very carefully.

Education businesses generally have their cash receipts weighted to the first half of the calendar year - but cash payments are spread throughout the year

[mark100]

Education businesses generally have their cash receipts weighted to the first half of the calendar year - but cash payments are spread throughout the year

sf, do you actually mean receipts weighted to 2nd half, not first half for the education business?

[mark100]

On afr.com this arvo:

Street Talk
Arowana International mulls education spinoff

Arowana International, whose managing director Kevin Chin was a former fund manager at Lowy Family Group, is believed to be joining the rush of education providers raising equity.

It’s understood Arowana, which this month acquired Quantum Education, is considering spinning off its education unit in a separately-listed ASX company.

Investment banks UBS and Macquarie Capital are said to be working with Arowana, which derives 88 per cent of its earnings from tertiary education (vocational training colleges for domestic and international students in New Zealand), on the spin-off.

It’s the same two banks which listed another education roll-up, Vocation Ltd, in December.

Investor sources said Arowana’s education spin-off could be worth as much as $200 million. Separately, it would make sense for Arowana, which declared a dividend on Thursday of 2.4¢, to explore a dual listing in New Zealand given its operations across the Tasman.

Arowana itself only hit the ASX boards last April with a market capitalisation of almost $58 million. The company operates three profitable divisions – education, training and events, and diagnostic testing – across Australia, NZ and selected parts of Asia, and was formed through the reverse takeover of Intelligent Solar.

Arowana’s deal comes on the back of Vocation’s successful ASX debut and as another education and vocational training provider Evocca College considers its strategic options, which may include a sale or initial public offer worth as much as $400 million.

Evocca is working with KPMG Corporate Finance, which also sold education provider SAE in 2010 for a solid price.

During the Vocation float process, fund managers were told government funding to TAFE has grown at a compound annual growth rate of 6.2 per cent over the five years to 2011. Government funding to the private sector increased by 22.4 per cent compound annual growth rate over the same period.

[steve fleming]

sf, do you actually mean receipts weighted to 2nd half, not first half for the education business?

Yep, second half of financial year/ first half of calendar year

[steve fleming]

“AWN intends to fund the Acquisition through a combination of existing cash reserves and additional debt and/or equity, which could potentially include an offer of securities at either the AWN or Intueri Education Group level (subject to applicable securities laws and the Listing Rules)”

Hmmm… wonder if this is hinting they are looking at an IPO of Intueri ? – would leave AWN with an investment in a new listed vehicle

Would fit with their PE Modus Operandi; and Arowana are very switched on operators.

Vocation (13x EBIT) , Navitas ( 22x EBIT) and AKG (9 x EBIT) are all private higher education providers all trading on nice multiples......very attractive sector with good outlook

hmmmm.....thanks for that AFR info, Mark .....An IPO of Intueri will be most interesting

looking forward to seeing how this will all be structured, I imagine AWN will look after their existing shareholders well

[Entrep]

In trading halt because of the above article

http://www.asx.com.au/asxpdf/20140228/pdf/42n2hm7hf2kzr9.pdf

[mark100]

The article appeared on afr.com yesterday arvo and in the print edition today. If I'd known how much it would move the price I would have bought more yesterday arvo!

The main risk I see if the education unit is spun out, AWN shareholders get a token priority offer in the IPO and Macquarie clients get the cream. I would prefer they keep it within AWN, divest the non-education divisions, change the name to an education sounding name and let it re-rate

[steve fleming]

Hi Mark, yes, I guess that is a risk. However, I'd imagine there would have to be some sort of in-specie distribution of NewCo shares to AWN shareholders, together with AWN continuing to hold a minority stake in NewCo

The alternative is NewCo purchasing Intueri from AWN for cash (say $80m - $10m EBIT @ 8x - did $4m EBIT for the half year) at which point AWN essentially becomes a cash box then probably a capital return which all becomes messy.

AWN is essentially a private equity fund (it was before it listed) and this is just a typical private equity exit type event

From previous experiences I have found Kevin Chin to be an excellent operator, who will be methodically assessing all potential funding options to ensure the best outcome for AWN shareholders

[steve fleming]

There was talk of a $200m float in the article

So back of the envelope calcs - AWN previously have suggested NZD20m (midpoint) EBIT for Dec 13. At AWNs target growth rate (15% - midpoint) this gives NZD23m to Dec 14 or AUD21.5

Comps would be Vocation (13x EBIT) and AKG (9 x EBIT)

At say 8 x gives you AUD172m EV

at 10x = AUD 215m EV

at 12x = AUD 260m EV

AWN's share, i am guessing based on EBIT estimates would be just under a half of this EV

Need to know how much debt will be in the new vehicle to relate this back to market cap/value

[steve fleming]

So Vocation listed on 10.5x FORECAST EBITA

per the pres tonite, HISTORICAL EBITA for Intueri was NZD22.3m = Aud21m

allow 15% growth gets you to AUD24m FORECAST EBITA

Given market leading position, revenue visibility and growth prospects should support a multiple close to VET (particularly considering VETs very strong post IPO performance)

so at say 10x forecast EBITA = AUD 240m

less AUD58m consideration to Quantum vendors and AUD19m borrowings (assume all AWN debt is at Intueri level)

= $163m implied equity value of 100% of Intueri - ie AWNs current equity in Intueri and full repayment of all AWN borrowings

Current AWN m/c = $130m (which includes Intueri interest, other businesses plus cash)

Mark - interested in your thoughts on these ballpark numbers, cheers

[mark100]

sf, my numbers very near yours.

I see VET is now trading at 14x FY14 EBITA up from 10.5x at the listing price.

Even using the CY13 numbers for Intueri:
At 10.5x EBITA: EV of A$220m less A$58m Quantum purchase, less A$19 debt, plus $A16m cash gives Equity value of A$159m or 97c
At 14x EBITA to equity value comes out at $1.40

And that ignores the 2014 forecast growth and the value of AWN's other businesses.

[Ginyuu]

I wish I could understand what you guys are talking about. It feels like another language.

[steve fleming]

allow 15% growth gets you to AUD24m FORECAST EBITA



So pres out this afternoon confirms FY14 = NZD25.4m = AUD 23.8m EBITA

the real kicker is if you use FY15 numbers = NZD30.1m = AUD28.2m EBITA

so adds another $50m odd to the EV

[mark100]

So pres out this afternoon confirms FY14 = NZD25.4m = AUD 23.8m EBITA

the real kicker is if you use FY15 numbers = NZD30.1m = AUD28.2m EBITA

so adds another $50m odd to the EV

Yeah saw those numbers and thought 2015 growth was impressive, so I bought some more at 78.5. It's still too hard to really come up with a definite value given the unknown funding structure however no matter which way I crunch the numbers I get values higher than the current share price

[mark100]

AFR street talk this morning

Brokers Macquarie Capital and UBS are introducing ASX hopeful Intueri Education Group to potential investors ahead of an imminent spin-off from Arowana International and a float in Australia and New Zealand.

Fund managers have been booked for Sydney and Melbourne one-on-one and group presentations this week, including a lunch at Macquarie’s offices in Melbourne on Wednesday.

Intueri is a newly formed roll-up. Arowana has put Intueri with Quantum Education Group and Online Courses Australia, creating a company with seven colleges, 26 locations and about 9000 student enrolments.

The combined group had $NZ66.6 million ($61.6 million) revenue in the 2013 calendar year and $NZ23.8 million earnings before interest, tax, depreciation and amortisation. Listed Australian peer Vocation floated at 10.5-times forward earnings last year, which would imply a $NZ250 million-plus listing for Intueri.

Fund managers have been told the company would list in both Australia and New Zealand, and this week’s meetings are likely to be the last soundings before Intueri makes a proper run at the ASX and NZX boards.

Macquarie and UBS each have another education sector stock to take to investors this week.

UBS has booked fund managers to meet Endeavour Learning Group, which runs beauty and health vocation education courses. Sources said it was early in the process and an IPO was unlikely for some months.

Rival Macquarie has 3P Learning, which is behind the popular online education tool Mathletics, with investor meetings in Sydney on Monday and Tuesday, and in Melbourne on Wednesday, before the management team heads to Asia.

3P is expected to float this quarter and be worth more than $200 million.

[mark100]

AWN is a listed private equity type company so for that reason I can see why they want to spin it out and use the funds for the next deal. My preference is to just keep it in house

[steve fleming]

As a holder in AWN I hope they are selling at the top of a frothy market.

However, I suspect a good portion of the interest will come from NZ funds and I don’t think there are any other education stocks on the NZSE. Intueri, as the NZ market leader would be a pretty attractive asset to list on the NZSE and is likely to keenly sought after by NZ investors.

AWN possibly consider that a dual listed public offering, which provides NZ investors and funds the opportunity to buy in and provide price support for the offering, to be the option that extracts the most value for the business.

[mark100]

Still not enough info here to tell how much cash is going into AWN's bank account from the capital raising and what size stake they will hold on to. Although that's a lumpy value they are putting on Intueri


Intueri to lodge prospectus ahead of $200m listing

Edited by Sarah Thompson, Anthony Macdonald and Gretchen Friemann

Arowana International’s vocational training spinoff, Intueri Education Group, will lodge a prospectus for its initial public offering this week, which is expected to value the new company at up to $NZ310 million ($286 million).

Intueri, advised by Macquarie Capital and UBS, has been meeting institutional investors in Australia and New Zealand over the past week and is ready to pull the trigger on an equity raising worth $180 million to $200 million. Intueri is the largest operator in New Zealand’s fragmented vocational training market.

It had 9103 enrolments in 2013, including 5950 in New Zealand and 2182 in Australia. The company expects $NZ76.9 million revenue in the year to June 30 and $NZ16.8 million net profit after tax and amortisation.

In roadshows, fund managers were quick to note Intueri was running at a 21.9 per cent NPATA margin, which compares favourably to heavyweight Navitas (9.7 per cent) and Vocation (20.9 per cent).

Intueri also told potential investors its earnings margin could go higher in all aspects of the business.

The company makes $NZ2789 in earnings per enrolment, which is about twice Navitas at $NZ1550 and well up on Vocation ($NZ802).

Intueri has told fund managers its relatively high revenue per enrolment reflects the nature and importance of its courses (which range from commercial diving to hairdressing) and control over the intellectual property and teaching.

In pre-marketing research delivered to investors last week, adviser Macquarie put a $NZ260 million to $NZ310 million valuation on Intueri, which represented a 14.4 to 17.7 times price-earnings multiple.

The company was expected to come to market with a 5.7 per cent to 4.4 per cent yield, based on the above range.

[Joshuatree]

re: Ann: Intueri Education Group - Shareholde... (http://hotcopper.com.au/post_single.asp?fid=1&tid=2233479&msgid=13230417) re: Ann: Intueri Education Group - Initial Pu... (http://hotcopper.com.au/post_single.asp?fid=1&tid=2233478&msgid=13230413)

Its all go

cash return to shareholders

[mark100]

More words but no details. Been trying to contact this mob for over 2 weeks and no one gets back to you. I only have one simple question!

[Rodin]

Arowana lodges Intueri IPO prospectus


Arowana International managing director Kevin Chin says the company’s pure play education spin-off is poised for growth on the back international students demand and the move to online only study.

Arwona lodged a prospectus on Tuesday for the initial public offering of Intueri Education Group, as flagged by Street Talk, which values the company between $NZ243 million and $NZ293 million ($224 million to $270 million).

Intueri will seek to raise up to $NZ234 million. About $NZ60 million will be used to buy the Quantum Education Group. Arowana, which has a market value of $142 million, will retain a 25 per cent stake in the education spin-off.

Intueri is the largest vocational training provider in New Zealand, with 5,950 students in 2013. It operates six private colleges that offer a range of courses including hairdressing, hospitality, fine arts and commercial diving. It also has a 50 per cent stake in Online Courses Australia, a digital-only provider of a range of vocational courses that had total enrolment of 2,182 in 2013.

Assuming the Quantum acquisition is completed and taking into account the OCA stake, Intueri is forecast to grow pro-forma revenue of $NZ76.9 million in 2014 to $NZ86.4 million in 2015 (12.4 per cent). Similarly, pro-forma earnings before interest, tax, depreciation and amortisation is expected to rise 18.5 per cent from $NZ25.4 million in 2014 to $30.1 million in 2015.

ENCOURAGING OUTLOOK
Mr Chin said the outlook for the education sector in Australia and New Zealand was promising, due to both countries being attractive to Asian students. “New Zealand, in particular, has always been an attractive market for education for safety and affordability reasons,” he said.

The move to flexible, online study would also drive growth in the sector, he said. But Mr Chin said he was not worried by the rise of free university subjects being offered as MOOCs - massive open, online courses - on websites such as Coursera.

Mr Chin said the MOOCs were too large and available to be taken seriously by employers. But he also added completion rates in some cases was as low as 10 per cent, which raised questions about the MOOCs’ quality. “The term massive is a misnomer,” he said.

He said the key to building value in the online education business is to ensure courses are relevant to employers. “We as Intueri, have to have a course that an employer will look at... and know it’s legitimate,” he said.

Arowana, which also has businesses in the events and diagnostics, made its first investment in the New Zealand private education sector in 2010, when it bought a college in Christchurch. The strategy was initially plagued with bad luck, given the city was struck by two earthquakes.

Mr Chin said Arowana would use some of the proceeds to move into primary and secondary education in Asia. “We’re not getting out of education.”
Intueri, which will be dual listed on the Australian and New Zealand exchanges, will compete with Navitas and Vocation, which have market values of $2.6 billion and $468 million respectively. Navitas shares have gained 43 per cent in the past year. Vocation shares have gained 19 per cent since they listed in December.

The company will undertake a bookbuild on May 6 and subject to Arowana shareholder approval, Intueri shares are expected to commence trading on May 23.

[Joshuatree]

What do you think re the LTVCP payment( i can't transfer it over) where" office employees will receive 20% of any outperformance above an average 8% per annum of Arowanas enterprise value calculated over a 5 year period" is this reasonable or snouts in the trough? cheers JT

[mark100]

Well I dumped my remaining AWN today. How much will be paid out under the LTVCP, where is a proforma balance sheet etc? They say this is uncertain due to not knowing the Intueri bookbuild price but you can still provide a range. How much to be paid out in tax, how much to shareholders, how much will sit idle in cash? I'm not interested in holding shares in a cash box
They take your details and never call back. Dobbie puts you on to Bloomfield who doesn't reply to emails or phone messages. They say sophisticated investors in AWN can participate in the Institutional offer for Intueri but then ignore all attempts an investor makes to contact them re the offer

[Entrep]

You and me both, although my reasons (and shareholding it seems) were a lot less that you - I'm happy with my profit and the Intueri IPO value seems a lot less to ANW shareholders now.

[mark100]

I could see $1.50 of value in AWN at first, assuming they kept Intueri and the market gradually re-rated AWN's PE to the level of other education plays. But now much of the value will leak to participants in the Intueri IPO, AWN will have a tax bill of some size (which will generate franking credits but cash is always nicer), Chin and Dobbie get to take an early cut via the LTVCP.

I'm always happy with a profit but it's less than half what I originally was hoping for!

[noodles]

AWN will have a tax bill of some size

But 3.6 of the shareholder booklet says "No impact on tax position It is not anticipated that the Transaction will have a material adverse tax impact on the Company or its
Shareholders. "

This is in contradiction with your assessment? There is no capital gains tax in NZ. Perhaps there is not tax payable?

But I tend to agree there should be some tax. I'm struggling to work out the tax impact.

[mark100]

But 3.6 of the shareholder booklet says "No impact on tax position It is not anticipated that the Transaction will have a material adverse tax impact on the Company or its
Shareholders. "

This is in contradiction with your assessment? There is no capital gains tax in NZ. Perhaps there is not tax payable?

But I tend to agree there should be some tax. I'm struggling to work out the tax impact.

I asked Dobbie about tax payable and he said he couldn't comment as it was still all being worked out. Like I've said poor info has being made available so far. The whole process has been rushed in my view. The explanatory memorandum should have spelt everything out in its first version.

We have a $130m company selling 90% of its assets and the Expl. Mem. has barely 4 pages devoted to the impact on Arowana with not one balance sheet or profit and loss statement in sight. The four reasons why you might vote in favour could have been written by an intern. 'The transaction will provide funds required to complete the acquisition of Quantum'. So AWN couldn't have raised equity in this bull market?

They give 3 reasons why you might vote against the transaction, all three are my point of view.

I had filled out my voting forms to vote against the transaction just for my own satisfaction but then thought why bother, just sell!

[steve fleming]

Agree, shareholder information has been terrible.

Also much disliked the constant leaking to AFR, then following it up with an ASX clarification, seemed a bit of a ramp attempt

However, it all depends on the offer price.

at $2.75, AWN;s share of the $275m is approx NZD215 or AUD 199m (pre leakage)
at $2.25, AWN's share of the $225m is approx NZD165 or AUD 155m (pre leakage)

Obviously, as Noodles said, no CGT in NZ, but tax will depend on the structuring of the remittance from AWN NZ subsidiary to AWN

Chin has had an exceptional track record of creating shareholder value over the last 10 - 15 years, and has made many of his backers very wealthy. I'm prepared to keep backing him.

As an aside, this is another fast growing Chin company http://ermg.com.au I wonder if AWN will somehow get involved in this with their cash.

[Joshuatree]

Thanks for that info Steve; worth sticking around, cheers JT

[percy]

Please read my post on NZ Intueri thread.

[Joshuatree]

According to my "smart investor " tables AWN over 1 year, $1000 of shares is now worth $117,788.00 !!!. So Chin has already made friggin mega mega megabucks:eek2::confused::scared:

[mark100]

According to my "smart investor " tables AWN over 1 year, $1000 of shares is now worth $117,788.00 !!!. So Chin has already made friggin mega mega megabucks:eek2::confused::scared:

They've forgotten the 1 for 20 consolidation before AWN was listed via a reverse takeover

[Rodin]

Hearing that there is strong demand for this float...

Bids roll in for Arowana spin-off Intueri
PUBLISHED: 0 HOUR 25 MINUTES AGO | UPDATE: 0 HOUR 25 MINUTES AGO
EDITED BY SARAH THOMPSON, ANTHONY MACDONALD AND GRETCHEN FRIEMANN
Macquarie Capital and UBS have started receiving bids for Arowana International’s spin-off Intueri Education Group, ahead of the initial public offering bookbuild.
It is understood the brokers have received commitments for $40 million out of the roughly $180 million allocated to the institutional offer, ahead of Wednesday’s share auction.
The books are being run out of Auckland and the bulk of the shares are expected to go to funds in Australia and New Zealand, with the company to be listed in both countries.
The institutional bookbuild will determine the price paid by all investors, and whether the float is successful. It will be followed by a retail offer.
Intueri is seeking to raise up to $NZ234 million at $NZ2.25 to $NZ2.75 a share to list on May 22.

[Joshuatree]

Good luck I've taken profits today.My broker said there had been no int in his neck off the woods but thats a tiny part of a bigger picture which i hope is positive for holders.

[noodles]

Good luck I've taken profits today.My broker said there had been no int in his neck off the woods but thats a tiny part of a bigger picture which i hope is positive for holders.
Well done JT.

I'm surprised the price has risen today. The IPO price was at the lower end of the range. NTA is 97c. This is above the current price, but does not include the payment for the LTVCP. It is likely to be reasonably large.

DIS: No longer holding.

[Joshuatree]

Hi noodles Another estimate that AWN is left with assists of $165 million or $1.01 a share , a special div of at least 5cps. S/P currently 89c up 6c. Congrats to steve and anyone else who hung in.