EVO - Evolve Education

[winner69]

Morale is VERY low throughout Evolve centres from what I hear and their is widespread discontent that head office are incompetent, unsupportive penny pinching corporates with little or no regard for highly experienced staff or grass roots quality care for the young ones. Staff turnover is absolutely shocking and most who were any good have left already and many others are thinking of leaving.

Its going to be like turning the Titanic around and we all know that was conceptually flawed with rudders that were far too small. Not saying it can't be turned around but there's plenty of icebergs around too not the least of which is the size of the bank debt and the vastly overstated intangible assets figure on the balance sheet.

I've got to be honest and admit I played with the idea of speculating on some when it hit 20 cents a while ago but decided I have no need to bottom fish and take speculative positions which look like having a binary outcome one way or the other.

You suggesting the $32m theyve already written down intangibles not enough?

Wonder what the terms of the capital raise will be? Current shareholders could be a bit peeved if a new ‘cornerstone’ shareholder comes on board at a cheap price (and diluting existing holders).

Mr Scott mightn’t like that but a discounted rights issue could be interesting.

[Ggcc]

I have heard that Porse might be going back to the good old days (before they got rid of the consultants) where they went to see the customer rather than cut costs. I guess when it became part of evolve some individual who just came fresh out of college and decided to reinvent the wheel. The Hawke’s bay division always performed better when personal visits were made rather than emails and phone calls.

[WAIKEN]

They are on the upward journey. Salt is trimming, not rushing for the doors. I see the move to a female CEO as being positive. The vast majority of pre school teachers are young women and need a lot of TLC which was lacking up to now. They are putting time and resources into resolving staff matters. I have a daughter teaching in a preschool. She has recently changed from a husband wife single site operation to another single operation. The previous school was struggling with high turnover and limited resources. The current one is doing better. I had an accounting client who operated two preschools and sold prematurely as the staff problems and compliance demands were overwhelming her. The new environment with a higher ratio of qualified teachers, rising wages, health and safety and other compliance matters will lead to many small operators departing. The kindergarten model works well as they are backed by infinite government funds and work shorter hours. Well run corporate operators with scale can do well if they create a happy working environment like any successful business. Scott is astute and heavily invested and is turning the business around. Alan Wham the previous CEO bought willy nilly just to get scale. He never addressed staff issues. I spoke to Mark Finlay who came back in as temporary CEO before he sold his holding to Scott. He didn't seem to have the energy to address the female centred problems in front of him and capitulated. There will need to be a cash issue to get the bank on board. Maybe 80mill at 0.25. I see a restored dividend and price above 0.50 by June next year.

[Scrunch]

I have heard that Porse might be going back to the good old days (before they got rid of the consultants) where they went to see the customer rather than cut costs. I guess when it became part of evolve some individual who just came fresh out of college and decided to reinvent the wheel. The Hawke’s bay division always performed better when personal visits were made rather than emails and phone calls.

What Porse does now is not particularly relevant to Evolve as per note 14 of the Sep 2018 half year report:

"On 14 November 2018, an unconditional sale agreement was entered into for PORSE in-home childcare and training business (refer note 3). This is expected to settle on 30 November 2018."

[Scrunch]

Wonder what the terms of the capital raise will be? Current shareholders could be a bit peeved if a new ‘cornerstone’ shareholder comes on board at a cheap price (and diluting existing holders).

I'm not sure that there needs to be a capital raise. The HY accounts note the bank's agreed two facilties $58m and $8.5m for $66.5m. The MoE's 3 payments per year on 1 July, 1 Nov and 1 March and quoted revenue indicate each of these payments is about $31m. Around half of this payment will be revenue in advance at FY and still favourably reducing bank balances. This results in HY accounts with a much higher debt level than FY. 31Oct 2018 would have been tight with only $5-10m undrawn. They got through that. Heading into 1 March 2019 would have also been tighter than they liked. Each subsequent 4-monthly borrowing peak should get a little easier, assuming the bank facility remains the same and isn't reducing.

31 March 2018 had $32.3m of borrowing and $5.4m of cash. Since then capital expenditure has been minimal (positive investing cashflows at the HY), EBITDA has been confirmed at over $13m and there's been some asset sales. This indicates debt at 31 March 2019 should be somewhat less than last year.

[carrom74]

They are on the upward journey. Salt is trimming, not rushing for the doors. I see the move to a female CEO as being positive. The vast majority of pre school teachers are young women and need a lot of TLC which was lacking up to now. They are putting time and resources into resolving staff matters. I have a daughter teaching in a preschool. She has recently changed from a husband wife single site operation to another single operation. The previous school was struggling with high turnover and limited resources. The current one is doing better. I had an accounting client who operated two preschools and sold prematurely as the staff problems and compliance demands were overwhelming her. The new environment with a higher ratio of qualified teachers, rising wages, health and safety and other compliance matters will lead to many small operators departing. The kindergarten model works well as they are backed by infinite government funds and work shorter hours. Well run corporate operators with scale can do well if they create a happy working environment like any successful business. Scott is astute and heavily invested and is turning the business around. Alan Wham the previous CEO bought willy nilly just to get scale. He never addressed staff issues. I spoke to Mark Finlay who came back in as temporary CEO before he sold his holding to Scott. He didn't seem to have the energy to address the female centred problems in front of him and capitulated. There will need to be a cash issue to get the bank on board. Maybe 80mill at 0.25. I see a restored dividend and price above 0.50 by June next year.

Thank you for an informative assessment of the stock.I am also inclined to infer that the capital raise is in the horizon.

Pretty bad at the moment---heavy selling across the ditch...23.5c now and going down...

[Beagle]

They are on the upward journey. Salt is trimming, not rushing for the doors. I see the move to a female CEO as being positive. The vast majority of pre school teachers are young women and need a lot of TLC which was lacking up to now. They are putting time and resources into resolving staff matters. I have a daughter teaching in a preschool. She has recently changed from a husband wife single site operation to another single operation. The previous school was struggling with high turnover and limited resources. The current one is doing better. I had an accounting client who operated two preschools and sold prematurely as the staff problems and compliance demands were overwhelming her. The new environment with a higher ratio of qualified teachers, rising wages, health and safety and other compliance matters will lead to many small operators departing. The kindergarten model works well as they are backed by infinite government funds and work shorter hours. Well run corporate operators with scale can do well if they create a happy working environment like any successful business. Scott is astute and heavily invested and is turning the business around. Alan Wham the previous CEO bought willy nilly just to get scale. He never addressed staff issues. I spoke to Mark Finlay who came back in as temporary CEO before he sold his holding to Scott. He didn't seem to have the energy to address the female centred problems in front of him and capitulated. There will need to be a cash issue to get the bank on board. Maybe 80mill at 0.25. I see a restored dividend and price above 0.50 by June next year.

Welcome to the forum and good to see some robust debate on this one. They may be on an upward journey but its from the very depth's of a deep dark well with no readily apparent ladder to use... Using another analogy...Turning the Titanic around before it hits the iceberg (assuming the rudders even work AKA is staff morale now so bad it's not a recoverable situation ?) will take time and as for asking long suffering shareholders who have seen their capital decimated by years of mismanagement for millions more...this is by no means a foregone conclusion at any price let alone 25 cents per share.

I think you are well and truly jumping the gun calling the share price as doubling in the next 14-15 months and resumption of dividends.

The fact that the bank has ostensibly removed the headroom from the company facility tells you they have lost confidence so I agree a capital raise is necessary but how and who is going to underwrite that ?

This stock should come with a 'HIGHLY SPECULATIVE WARNING" so I have titled this post accordingly.

If this stock is "investable" and that's still a big IF in my mind the time to do it would appear to be contemporaneously with the capital raise so at least its de-risked from the bank's perspective. Buying someone's else's right's to subscribe to new shares at say 20 cents per share for a fraction of a cent each might have some merit provided they can demonstrate the ship is actually starting to turn around. Average centre occupancy will be a key statistic to watch in my opinion and if they can't turn that around then...

[WAIKEN]

The obvious underwriter is Chris Scott. Although he will run into a takeovers code issue if his share holding exceeds 19.9% after picking up the shares of those who don't wish to increase their holdings. Another possibility is a bond issue at around the rate being paid to the banks. this would be likely to be underwritten by Scott. If the bonds are not convertible then I don't see a takeover code issue.
The stock is no longer highly speculative. It is already being turned around

Chris Scott

Non Executive Director (Non Independent)

Appointed 28 November 2018
Chris Scott has over 37 years experience in senior management positions. He has spent over 35 years in business in Singapore where he founded a number of successful businesses. Chris founded S8 Limited which listed on the ASX in 2001. S8 which was an integrated travel Company that acquired 36 businesses over a 5 year period and was capitalised at $700 million. S8 Limited was the subject of a successful takeover bid in late 2006.
Chris was the Founder and, from 2010 to 2016, the Managing Director of ASX listed G8 Education which evolved into Australia’s largest listed early education and child care provider. During this period, the G8 Education Limited portfolio grew from 38 to over 500 pre school education centres in Australia (plus 20 in Singapore). Chris was also instrumental in raising over $500 million in equity capital and more than $500 million in debt (including Singapore dollar bonds). G8 Education market capitalisation grew from $4 million in 2010 to a peak of approximately $1.9 billion.

[GTM 3442]

Lots of people have lost lots of money in lots of countries by investing in education. I am in no hurry to join them.

[noodles]

Welcome to the forum and good to see some robust debate on this one. They may be on an upward journey but its from the very depth's of a deep dark well with no readily apparent ladder to use... Using another analogy...Turning the Titanic around before it hits the iceberg (assuming the rudders even work AKA is staff morale now so bad it's not a recoverable situation ?) will take time and as for asking long suffering shareholders who have seen their capital decimated by years of mismanagement for millions more...this is by no means a foregone conclusion at any price let alone 25 cents per share.

I think you are well and truly jumping the gun calling the share price as doubling in the next 14-15 months and resumption of dividends.

The fact that the bank has ostensibly removed the headroom from the company facility tells you they have lost confidence so I agree a capital raise is necessary but how and who is going to underwrite that ?

This stock should come with a 'HIGHLY SPECULATIVE WARNING" so I have titled this post accordingly.

If this stock is "investable" and that's still a big IF in my mind the time to do it would appear to be contemporaneously with the capital raise so at least its de-risked from the bank's perspective. Buying someone's else's right's to subscribe to new shares at say 20 cents per share for a fraction of a cent each might have some merit provided they can demonstrate the ship is actually starting to turn around. Average centre occupancy will be a key statistic to watch in my opinion and if they can't turn that around then...

While the price is much lower than IPO, the valuation metric (EV/EBITDA) used to sell the IPO is much the same. I can see a 1:1 rights issue at 17c as being realistic. Even then, they will still have plenty of debt.

	IPO	Now
Price	$ 1.00	$ 0.24
MC	177	42
Debt	9.5	48
EV	186.5	90
EBITDA	25.7	13.4
EV/EBITDA	7.26	6.72