EVO - Evolve Education

[noodles]

EPS 5 cps v 4.8 Assume 10 cps for the full year, (my no growth PE is the same one Ben Grahame used 8.5), fair value 85 cps in my opinion if you believe the intangible asset valuation ?

The headline eps are not reflective of underlying performance because they paid a lower tax rate and other non-recurring items in 1H16. Pg.13 of the presentation describes this. Actual NPAT growth was 16%.

[Beagle]

Welcome back Noodles, you're a man of very few words these days. Profit growth whichever number you want to hang your hat on, at least in part is coming from the hollowing out of centres in terms of providing children with the absolute bare bones basics. Based on what I have heard I wouldn't be comfortable sending one of my grandkids to an Evolve centre so the question of whether this is an ethical investment is a no brainer for me... but each to their own.

[tim23]

Gee - what have you geard Roger.

[tim23]

Sorry meant "heard"

[noodles]

Welcome back Noodles, you're a man of very few words these days. Profit growth whichever number you want to hang your hat on, at least in part is coming from the hollowing out of centres in terms of providing children with the absolute bare bones basics. Based on what I have heard I wouldn't be comfortable sending one of my grandkids to an Evolve centre so the question of whether this is an ethical investment is a no brainer for me... but each to their own.

I am comfortable that Evolve is an ethical investment for the following reasons:
-Competition is fierce in the ECE world. Parents would simply move to another centre if it was that bad. I think the opposite has happened and parents have been recommend Evolve centres to their friends. Occupancy for the core 84 centres has increased since Evolve took over (by 1 %).
- Evolve undertakes customer surveys. They have a net promoter store of 37
-Teacher ratios are well above government standard.
- The ERO does reviews of the centre. Most ECE are on a 3 year review (good). A few are on 4 (very good). So no issue from the ERO.
- The pay rates for teachers are slightly above the sector average

[Beagle]

Sorry meant "heard"

Have a read from the start of the thread mate.

Noodles, What I have reported is a exceptionally good early childhood centre morphing into a corporatized centre and feedback was from a senior employee that I am related too and hold in very high regard. This was in an area where parents are able to afford the very best for their kids and to be fair may not necessarily be representative of the changes an average privately owned childcare centre would experience changing into a corporatized model. The reality for logistical reasons is I think most parents just take what they can get in their local area and changes in EVO's occupancy could be as much to do with demographic factors including the rapid influx of migrants as anything else. You absolutely loved Veritas at one stage it was your top pick. I made the argument that those sort of business's are poorly suited to the corporate model. Corporatizing bars and food outlets hasn't worked and that is a company choc-a-bloc full of intangible assets too.
Two of my extended family have been involved in the sector for over 20 years each. From their observations profitability in this sector can be materially affected by a shift in government policies. Can you think of a recent reason why the Government purse strings might be dramatically tighter in the years ahead ?
Its not for me and the SP has been most underwhelming since listing but good luck to all, I will leave holders in peace now

[DarkHorse]

It's good to hear different points of view Roger, but in my view those above tend to be either too narrow or a bit too broad.
I'd prefer to look at metrics and reports across all centres than just feedback on one. Even the ABs lose sometimes, and even the best corporate with a large number of branches will have the odd poor performer, while some - but certainly not all - small owner operators are outstanding.
We have several options here for our kids and like most parents wouldn't hesitate to change if the service was poor.
Roger, how many of your holdings have high tangible asset backing? (excluding property and infrastructure companies of course)
How do you foresee a future National or Labour government changing policy? (remembering encouraging mothers to work increases the tax take)
One ongoing trend in most sectors is ever-increasing regulation around health and safety, HR etc etc, driving up fixed costs and making it very hard for small operators to compete as economies of scale become ever important.
Some private operators - eg kidicorp - have made made great profits; others will have poor returns. It will come down to management. I'm fairly neutral on the sector, but see value here as long as management is doing a great job.

[Snow Leopard]

Having thrown toys around, cried for no apparent reason and then gone to sleep for a while I have now, with the aide of my financial calculator,



valued Evolve.

So current (21-Nov-16) value: $1.174
end of year (31-Mar-17) value: $1.197
one year out (21-Nov-17) value: $1.239

All on the assumption that they do not go overboard on buying more kindies.

Best Wishes
Paper Tiger

Disclaimers:
Do Your Own Research,
Valuations will change as information comes to light,
I want a biscuit, now.

[winner69]

First impressions are solid result, will look deeper when I get more time. Good to see efficiency increase in base aquisitions.

Chief concerns at the moment are that RoE is only marginally greater than (or even less than) cost of capital. I believe the development centres will increase RoE but this remains to be seen. At the moment have valued company as no growth as I am not fully convinced that RoE>Cost of Capital

For the record I value company as around $1.40

ROIC (invested capital being equity plus debt) is just over 8%

James - what you reckon their cost of capital is?

More than 8% not adding any economic value are they

[James108]

ROIC (invested capital being equity plus debt) is just over 8%

James - what you reckon their cost of capital is?

More than 8% not adding any economic value are they

10-10.5%, my spreadsheet says WACC is 10.1%, although proportion of debt will have changed by now. Keep in mind that their profitability will very likely increase without any further investment as we get full year impact and efficiency increases for the first few years of center acquisition.

I recall drilling down to the acquisitions of centres and it seemed like return on investment would only be around 10% even after allowing for some increase in profitability.

I do think that the centres developed by evolve have the potential to deliver very attractive returns on investment though.