Thanks to all for a great analysis and discussion today and on..Sharetrader at its best:t_up:
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Thanks to all for a great analysis and discussion today and on..Sharetrader at its best:t_up:
So future growth is what extra they can squeeze out of existing centres plus acquisition of new centres
Love this comment in recent announcements - 'Vendor price expectations are elevated'
Greedy bunch of operators aren't they - not seeing a gift horse when one appears willing to enrich them.
Hope evolve don't pay over the odds for centres
Spose this statement says they happy with the prices they paid - Average purchase price EBITDA multiple expectation up approx. 1x from those of FY16, (multiples calculated on budgeted first year under Evolve operation), to approx. 6x. (Whatever hat means)
With negative net assets of 18 cps and EVO looking to acquire another 20 or so early childhood centres this year using debt I think the theory behind this is worthy of discussion.
Disc: I don't know the industry well but I have no choice sometimes at family gatherings to listen to my two sister in law's chatter on about issues affecting the sector and their centre's and crikey do they know how to talk !
At a fundamental level I have an issue with the non amortisation of goodwill on acquisition when the industry can be affected both positively and negatively by government policies.
No amortisation of goodwill at all suggests the goodwill on acquisition can never be diminished and has an infinite life.
I don't believe this is appropriate with childcare centres for a number of reasons:-
1. Potential changes in future government policy. We saw tremendous growth in the industry when parents were allowed 20 hours free care per week, what if that policy changes at some stage in the future and there is grossly excessive capacity in the industry ?
2. Competition increases - lack of barriers to entry. I've seen the profitability on centres hollowed out by more upmarket centres opening in the same neighbourhood
3. Potential for mismanagement - A centre is only as good as the management. To suggest that there is no possibility whatsoever of goodwill erosion through mismanagement or management at a lesser level than the former owner, or parents being disaffected by the change to the corporatized model is a brave call.
As I suggested on the Veritas thread, goodwill on acquisition sometimes has a mysterious habit of disappearing at a faster rate than any contemplated amortisation rate. Seeing as there's no amortisation rate with EVO's intangible assets shareholders are entirely relying on management's ability to maintain goodwill indefinitely.
As Noodles pointed out recently their stat's are good thus far...but that's predicated off a rapidly expanding population base due to the highest migration level's N.Z. has ever had. Will those migration level's continue indefinitely ?
What about demographic factors, kids don't stay in these centres for long, what about if less babies are born in the future ?
From what I have observed I think this is a cyclical industry with cycles primarily driven by factors mentioned earlier. In my view at least at a theoretical level I don't feel comfortable that goodwill can be maintained indefinitely in any cyclical industry. I'm not suggesting EVO is not complying with generally accepted accounting principle's with the preparation of their financial statements but all I am suggesting is the fact that their is debate within the accounting profession as to the current accounting standards in this area and whether they are appropriate at a blanket level or for some industries in particular.
I'd feel more comfortable if the bulk of their model was starting new centres from scratch rather than paying full price when the industry aided by positive cyclical factors at present is booming.
As I said in the Veritas thread my default position when thinking about any company is to strip out intangible assets and value them at NIL and then start to ask myself if they might indeed be worth something or not i.e. I never rely on what some other accountant says they're worth.
Noodles suggested we can rely on ERO audits for quality control...I have a low level of the assurance you can gain from any auditing process. (I know its a different auditing process but all those finance companies that collapsed during the GFC were audited, see my point ?) All those finance companies were also overseen by so called professional trustees.
Has anybody tried to reconcile what the recently acquired centres have generated in the way of revenues and by default what the existing centres are doing
Like the 20 acquired in FY16 were reported as doing $11.0m ($19m if they were open for the full year) and the 5 acquired in H117 did $1.4m.
Question - is this purported strong growth really that strong.
The EVO looks a bit moribund
Seems to fluctuate around the $1 plus or minus 10 cents - in spite of 25 new centres (~$35m revenues)
Is EVO going to be one of those stocks that promises so much but at the end of the day it can't seem to excite the punters
Or other reasons not liked?
Or other reasons not liked?
For me the fact that some of there competition are not for profit organisations is a negative. These organisations don't pay tax and therefor will put a limit of how much EVO can grow there profits.
"It's just an impossible situation. You can't satisfy parents who want to hold fee costs, the teachers who want a raise and the shareholders that want a dividend. That's why I re privatised it. We just couldn't survive in that scenario.(Kidicorp owner)
Last years article on stuff,
The owners of the country's biggest childcare company, Kidicorp, are ditching the corporate name and giving the whole operation to charity.
Wayne and Chloe Wright, whose family trust has owned Kidicorp since privatising it in 2007, have transferred the company to the Wright Family Foundation, a new registered charity.
Wayne Wright said it was their passion to make a difference to the lives of children.
"We were very successful financially younger in life and money has never been of much interest to us. We're just interested in making a difference. There's not too many people that have that view – in fact I'm regularly surprised at the way people want to hang on to their money. We're just not like that."
The company, which runs 256 childcare centres up and down the country, has been renamed Best Start Educare. As a company wholly owned by a registered charity, Best Start will benefit from tax-exempt status.
Its services will continue to operate under current brand names, including Top Kids, ABC, First Steps and Edukids. Collectively they look after about 19,000 children and employ more than 4800 people.
Wayne Wright said although the operation would have been valuable to outside investors, "we wanted to protect the quality features and community-centric approach we've built up over the years.
"We've accepted the reality that commercially driven owners would be focused on returns to shareholders and likely compromise what Best Start stands for – improving children's lives across New Zealand."
The Wrights have previously flirted with an overtly corporate model, listing KidiCorp through a reverse takeover in 2003.
The move was not an outstanding success and the family bought Kidicorp back in 2007 in a deal valuing it about $42m.
In an interview with the Sunday Star-Times last year, Wayne Wright said the public markets were difficult for a childcare-focused business.
"It's just an impossible situation. You can't satisfy parents who want to hold fee costs, the teachers who want a raise and the shareholders that want a dividend. That's why I reprivatised it. We just couldn't survive in that scenario."
Chloe Wright said moving ownership into a charitable foundation was a natural progression.
"Profit and returns have never been a priority for us, so this seemed to be the natural and right thing to do. We wanted to make our not-for-profit structure clear and official."
The Wright Family Foundation was registered as a charity in August last year. Its officers are Wayne and Chloe Wright and Tauranga solicitor William Holland.
The points Wayne Wright make could apply to a number of industries/sectors;
Food .Sanitarium pay no tax,yet the supermarkets are full of other companies' breakfast products.
Retirement Sector.Not for profit,and small operators are giving away to RYM,MET,SUM because compliance,health and safety issues cost them too much.
Education.In NZ private schools compete with both Church and State schools.
General.Why would you pay $150 for a pair of jeans when you can buy some for $20,a bottle of Oyster Bay wine for $20 when you can buy others for $10,pay $250 for a flight to ChCh when the person sitting next to you paid under $100?
The answer is CHOICE.
EVO gives parents the choice.
For EVO to succeed they have to do the following;Be in the right location,and offer their customers great service/safety,.If you give the customer what they want,you will get what you want,applies to any business in any sector.
EVO have a good business model which is working.So they are giving their customers what they want.
The revenue is growing,both by occupancy rates and number of sites.They have the choice of starting their own new premises, or buying existing businesses.The business is on track.
The eps is growing,
The dividend is growing.
The sector is growing.
They have the finnancial capacity to expand the business without coming back to shareholders for more capital.
Thanks Forest, interesting article. Sounds like the sort of centre I'd like my grandchildren to attend. Putting kids before profit. The whole deal, making money from a corporatized model from very young children makes me uncomfortable but each to their own.
As an aside Im curious if wayne wright owns some of the childcare centres and leases them to the charitable foundation he gifted the business to; anyone know?
Spose if mum and dad both have to work and little kid has to spend 40 hours plus a week in day care EVO should do well.
http://www.stuff.co.nz/life-style/pa...2-hours-a-week
Poor kids though - cant be good for them. Jeez the kid in the article got to play in the sand pitthe other day.
Good news for Evolve ....possibly
http://www.stuff.co.nz/life-style/pa...meet-standards
Evolve squeaky clean - if the mentioned centres close more kids for Evolve - or the owners might. just decide to sell them cheaply to Evolve
Sounds exactly like the retirement sector before Ryman set new standards.
Lets hope Evolve set the bench mark.
Evolve (EVO) Releases Interim Financial Report
Up 1 cent after hitting 96c. Little vol , little int . Right on the 180 DMA
Our dividends are in the bank today.
EVO multiple pick by analysts in their Top 5 for the year
Might have to include in my picks - likely to be the star of 2017
The brokers are not the only ones tempted, it is certainly high up on my "2017 Hit List". Seems a good "growth + dividend" play
Just JB Were from what I can see mate. Can you post a chart comparing EVO with the NZX50 since it listed ? Looks like a complete flop so far to me.
The hound knows every dog can bark now and again but this one has been a strangely silent pup since listing and no sign of any form to date.
And a Forbar pick - you might have guessed that eh
The JB Were guy says
'Ward says his team see Evolve as well placed to benefit from further government moves to support mothers in the workforce and notes the trend has similarities to the retirement sector several years ago.
"Acquisitions, developments and cost-out initiatives will see strong near-term earnings growth from a roll up growth opportunity," he says.
Similar comments to what percy posted a week or so
Surely a future market darling - maybe 2017
LOL I missed that, going cross eyed from all the boxing day sales :) Sticking with my views expressed in #104.
From Dec5 2014 when listed EVO down 9% and NZX50 up 24% (yahoo info). Capture below
But EVO might have been a sleeping dog but the dog has woken and EVO is about to roar ahead
I reckon 2017 will the year for stocks like EVO - the poor neglected ones getting a bit of attention will be the catalyst for huge gains. Stocks that people have loved liked TIL will be ditched and the punters will be piling into the next big thing.
EVO definitely one for 2017
being watching n tempted to get in...strong buying lately ...a lot of buyers.....u might be right...sleeping dog that slowly woken up....will see tomorrow...might jump on board...
run through thier intern....looking very promising...revenue to grow as well as its dividend.....
Ran up to about $1.09 before Christmas I like the growth/yield combo
Any suggestions guys?
I suggest, if my memory serves me well, that EVO has a current value of about $1.18 and a 1 year forward value of about $1.26.
I suggest that sustainable, not getting into trouble, growth is limited and that it should be viewed as an income stock.
I suggest you Make Your Own Decisions.
Best Wishes
Paper Tiger
Using your figures ,and expecting them to be "stripe on", an investor buying EVO at yesterday's $1.05 ,can enjoy a 6.5% gross yield and a 20% share price increase over the next year.
Pretty exciting boring income stock I would think.
I think Craig's target price is $1.33,while Forbar's is $1.37.
I remain "well positioned" having brought in at 95 cents awhile ago,and enjoyed a dividend.
Paper Tiger - more growth ahead plenty of acquisitions available the incomes ther too.
Jump on board today...sold my AIR n swap with this sleeping dog....
Percy - Whats your prediction for the share price at the time of the next dividend?
Sorry,I have no idea.
I try to buy shares where the eps growth is higher than the PE ratio.EVO is one such share, which also pays a good dividend.
The agm stated their business model is working,and since I brought, they have done further acquisitions,so I am very pleased with my investment.
The company is getting more coverage,which is generating more interest,with the result the share price is increasing.Whether the sp will continue its upward trajectory at increased speed or not,we will have to wait and see.
In the meantime I will just sit back and enjoy the ride.!!..lol.
Before you buy Mitch ,go to www.nzc.com and in company search put in EVO, then go to announcements.The one I would like you to read is dated 25th August 2016;Annual Meeting speeches and presntation.
Percy - How do you compare the eps growth relative to the P/E ratio?
for this instance, what is this calculation for EVO?
He he he.!!!
Maybe Mitch it may pay to try www.nzx.com...lol.
Thanks w69.
Mitch percy wantsvyou read this
https://www.nzx.com/files/attachments/242229.pdf
I'll leave it to him to explain eps growth and pe
Here goes.
A company has earnings per share of 10 cents.
Going from www.4-traders.com,brokers research and company presentations we can work out they are projecting 12 cents earnings per share in the coming year.
We know that is 20% growth.I look for eps growth.
Now we can work out a PE [price earnings] ratio should be under that 20..So if we can buy that share at either a PE of 10= $1.20 or even a PE of 15=$1.50 we know we have a big margin of safety as with such strong eps growth of 20% the sp should go to 20 times eps ,which is $2.00.
So back to EVO.At present time I see ANZ Securities are showing eps of 13.57 cents,and a PE of 7.89 and a dividend yield of 4.58%.
I am expecting eps growth of between 11% and 14%,so with the PE is very reasonable.
Had the PE been 18 and growth 14% I would not have brought.
I have recently sold AIA pe 30.42,POT pe 34.68, and FPH pe 31.33 because I feel their growth rate is half their PE.This is the wrong way round.
Yes it really works.
Always good to use when companies give forward forecasts,or surprise updates.
A lot of people do not do the maths.
When you find a company with eps growth 2x the PE,buy it.
Most times you will find a lot of good companies' PE is just above or below their growth rate.
When PE is 2x the growth rate, be prepared to sell, especially when the dividend yield is very low.
You can be right or wrong on the growth rate,but as it changes the ratios we are using remain true.
Well worth a read is the HLG thread.Current PE is 13.64 and eps of 23.09 cents.Yet a number of us are expecting eps of between 35 cents and 40 cents.
That is eps growth of between 50% and 70%.Makes the current PE look a bit odd.!!!???.Should the eps come in at 30 cents that is only 29% growth rate which is still 2x the PE.A good margin of safety.
Basically I base my investing on the book The Zulu Principal by Jim Slater.
Google that as there is a lot of imformation there.PEG is really what it is about.PE divided by Growth.Another one useful for NZ, because our companies pay out high dividends, is PEGD which is PE divided by growth plus dividend.
Often a company will give an earnings update.Depending on the company it is usually a bit conservative.SCL for example, always under promise and over deliver.
Brokers' research is pretty reliable,as is www.4-traders.com.
And yes general analysts; record cars sales means CMO,TNR and HBL will do well,
Drought/flood could affect PGW earnings .Hail storms,disease will affect SCL and SEK.
High NZ$ will be good for retailers such as WHS,HLG etc,and bad for exporters such as SCL.
Ageing population is good for the retirement and medical supply sectors,RYM,SUM EBO etc.
[QUOTE=percy;651324].
Well worth a read is the HLG thread.Current PE is 13.64 and eps of 23.09 cents.Yet a number of us are expecting eps of between 35 cents and 40 cents.
That is eps growth of between 50% and 70%.Makes the current PE look a bit odd.!!!???.Should the eps come in at 30 cents that is only 29% growth rate which is still 2x the PE.A good margin of safety.
Mitch.
The 35 cents to 40 cents was for HLG,not EVO.!!!!!!!!!!!!!!!!!!
Welcome Mitch. At the risk of stating the obvious, just a brief comment on the PEG. I agree with Percy that PEG is an extremely useful filter. At the same time, as I'm sure that he would agree, you need to also consider volatility and sustainability of earnings (for example cyclical stocks are best bought at the bottom of the cycle - when PE is higher - look at PS). Imagine you're buying a small business outright - you'd look back and forward more than just one year. Of course it also pays to consider the skills and credibility of management, financial soundness, business prospects...etc.
While I'm happy to own EVO and HLG, I don't seem them as big winners long term.
And try and use sustainable growth figures when calc PEG ratios. Try not to pick just the couple of good years growth when the average has been bad and might be going fwd.
I totally agree with both Darkhorse and LAC's comments.
okay, will do, thanks guys!
Just as an apple a day keeps the doctor away
A cent a day makes EVO shareholders richer and richer
Go you good thing
Feels like nothing can go wrong
A very strong week for EVO,and to finish at,I think an all time high of $1.14,bodes well for the present upward trajectory to continue.
I am glad, sold my AIR n swapped with EVo....:t_up:
Good for you - odd depth happening today which looks okay for continued price appreciation
Looks like a day of consolidation with few decent sized off market parcels being traded...
Price been a bit weak lately but up trend not broken so all honky dory still
https://nzx.com/companies/EVO/announcements/298189
Blame it on Milford for price weakness...
But if a fund manager is selling someone is buying...
Any ideas why the SP has been stagnant and dropping recently? I couldn't see any news or ex-div dates, unless I've missed something? Considering the previous discussion here it seems a good time to get in.
There has been no news other than Milford selling some.
The full year result is due at the end of May.
I am expecting a steady solid result.
The company is trading on a very modest PE and the current dividend yield is 4.67%
The share price is currently $1.05, which is below the 100 day EMA $1.06,but still above the 200 day EMA $1.03.
I hold.
Welcome to the forum. Sometimes a good idea to go right back to the start of a thread and have a read about others point of view rather than just looking at recent posts.
Fact is the share price has not "evolved" into anything other than a real disappointment for investors since listing over two years ago and the shares have dramatically underperformed the NZX50 index.
I suggest reading the whole thread and asking yourself why this stock has been such a poor performer since listing. Maybe there's some very sound reasons why it might always trade on a very modest PE ? Good luck. Disc: I don't hold.
Technically still in an uptrend from October 15 lows when it was in the 80s - ie higher highs and higher lows
A sin stock but for those who only trade ticker codes no worries, esp if Forbar reckons its worth $1.33
That was their very old 12 month price target way back when they commenced coverage when the company listed and proved to be "highly accurate" didn't it !
http://www.4-traders.com/EVOLVE-EDUC...917/consensus/
One analyst covering it now, possibly still Forbar but they now reckon its worth $1.53 :lol:
Possibly the same analyst that came out in February 2017 and downgraded AIR and put a value of $2.08 on them.
Disc: I stopped paying them 1% brokerage for their "expertise" many many years ago. Same brokers that told me many years ago that Apple was not a good investment when they were $U.S.100.00..(that was before the 7:1 split, enough said)
Nothing more important that a child's early care and education - what's wrong is that for every dollar parents pay for that care about 15 cents is profit for EVO - most eventually finding its way into shareholders profits.
Just imagine if that $30m odd a year (in Evolves case) was spent on the children developing them even further instead of enriching shareholders.
Childcare/education and the relentless pursuit of ever increasing shareholder returns aren't a good combination
EVO was one of Forbar's conviction picks, (see stocktastic) and has them at 125th place so I guess they're the ones at $1.53.
Agree with Winner, corporate model probably not the very best for kids, early child care centers in my opinion are best run by really caring owner operators who are well respected in their local community.
Same arguements were used when RYM started out.
Awfull they should look to profit from oldies.
Leave it to the not for profit groups.......................,who provided poor care and lost heaps doing it.
EVO provides a service in a strong growth sector.
Their business model is sound.Their eps is growing,which will see a growing dividend.
Well it gives people options right? Parents can always send their kids to an alternative - the same as with private schools, if you dont like what the state provides you can choose another option which I guess is the same options here with childcare. The same as the retirement sector.... We can't honestly expect a business not to make a profit because it performs better than the competition? What I think needs to happen is the competition needs to step up their services which in turn will take up their costs....and ultimately end up being paid by parents or the tax payers.
I have estimated EVO sitting at aprox 10.5 PE ratio with the assumption of 18mil fy earnings . While 7.7 PE is cheap on its own it could be slightly higher npat when earnings are announced next month?
Greatly undervalued for a growing company imo
Even though he was speaking about the P/E here, he has to be talking about EBIT, FY2016 NPAT was around 8m...
I bought late last year liked the combination of growth plus reasonable dividend - nice mix
Me too.!!!!!!!!!!!!!!!.Plus they are in a growth sector.
With Norah Barlow busy as CEO of EHE in Australia, I am pleased that Alistar Ryan will take over as Chairman on 1st June.
The appointment of Ms Grainne Troute, who is already on the boards of SUM and THL, is also positive.
oops sorry you are right I miscalculated that . Should be 10.5 PE ratio with the assumption of 18mil fy npat
From memory centre acquisitions provide around 10% RoC (which is pretty low). But they are now funded by debt at 4-5% so they will be earnings accretive.
The real question is do they increase the valuation of the business? Imo no, not from the get go anyway. My discount rate is 10-11%
Acquisition of smaller players. Sure, that alone will not significantly increase earnings, but economy of scale might. A larger base of preschools will (if used wisely) allow for improved quality as well as reduced costs (higher purchasing power and less admin costs) per centre.
Discl: hold a small parcel.
2 8 11:56:36 am 106 225,000 $238,500 Off Market 3 7 11:56:29 am 106 725,000 $768,500 Off Market
Good moves but you left out the important detail that Norah is still staying on the board. Also I note recently that Milford posted a substantial shareholder notice reducing their stake from ~ 9% to ~8%. As we have seen with their reduction in THL holding, the SP has stagnated while they're selling out. I think the SP performance since inception in Dec 2014 has been most underwhelming relative to the NZX and with Milford obviously disappointed with results to date (as well as other institutional holders I am sure), they really are going to have to start delivering some genuine highly credible EPS growth for this to break out of what has ostensibly been a long flat trading range since listing. This is one for very patient investors, you'll be okay Percy, you're very good at being patient.
Last year EVO result was announced on 22nd of May.
Not long to wait.Also waiting for AWF and TNR results.
Am expecting all three to be on track.
I purchased our EVO on and around 9th September last year, at 95 cents per share.
Since then we have received a 2.5 cent divie paid in December.
So on rough figures we are up 14% in 8 months .Very happy with them so far.
Milford sold heaps more last week - cant be meeting their expectations
But no doubt some happy buyers