Why the Navitas Ltd [ASX:NVT] Share Price Got Crushed Today…

What happened to the Navitas share price?

Shares of listed education company, Navitas Ltd [ASX:NVT] got crushed today, falling more than 15%, as the company announced that it may receive fewer government training contracts.

Why did NVT shares drop?

Navitas Ltd is a private education company. It generates a large portion of its revenue from government contracts as a ‘preferred supplier’ of English as a Second Language (ESL) education courses.

These are particularly for adult-aged migrants, who may come to Australia without having English as their first language.

According to Bloomberg, the removal of Navitas as a preferred supplier in a number of regions could:

See earnings before interest, tax, depreciation and amortization [EBITDA] at its professional and English programs until fall by between A$12 million and A$14 million in fiscal 2018 and beyond.

That’s a relatively big deal. For the 2016 financial year, Navitas recorded EBITDA of $164.6 million. So even at the low end, the loss of preferred supplier in some regions could wipe around 8% from the company’s profits.

The saving grace, and this is perhaps why the share price didn’t take more of a beating, is that even though English Language courses account for around a quarter of the company’s revenue, growth has stagnated over the past three years.

That would seem to be in line with a fall-off in immigration growth. Navitas must now hope it can reinvigorate growth in its University Programs segment and other areas.

What now for Navitas Ltd?

The private education sector had been a strong growth story until 2014. The Navitas share price had gained 367% from 2005, until then. But since then, the share price has trended downwards.

But despite the bad news and the negativity that has surrounded the sector in recent years, Navitas still makes a profit, and it pays a regular dividend. It would take a brave investor to look at the stock so soon after a big slump, but it could be one to add to the watchlist, pending a reversal of the trend.

By Kris Sayce

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005. He is the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service, Markets & Money.

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