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Generous offer for Navitas gets high marks

Roger Balch  |  11 Oct 2018Text size  Decrease  Increase  |  
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Hot on the heels of the KKR offer for accounting software play MYOB earlier this week, the BGH Consortium has lobbed a bid for education provider Navitas.

The consortium includes BGH Capital, Navitas founder Rod Jones (who owns a 13 per cent stake) and industry super giant AustralianSuper.

BGH Capital is offering $5.50 a share cash, a 26 per cent premium to its last close and a significant premium to Morningstar’s pre-bid fair value estimate of $4.22.

online education

Navitas is an industry leader in providing pre-university and university pathway programs

There's an alternative offer on the table of a combination of $2.75 cash per Navitas share plus one share in a new unlisted company (which will own Navitas) for every two existing Navitas shares. The simpler all-cash option is preferred by Morningstar, although both effectively have the same value.

At 11.45 Sydney time, Navitas (ASX: NVT) was trading at $5.27. 

Morningstar analyst Gareth James says, "Considering the offer is 30 per cent above our fair value, we think it offers good value and have moved our fair value estimate to the offer price to reflect our expectation that the bid will proceed."

James says the significance of the bid – albeit a "preliminary, conditional and non-binding" one – is it shows there's "a lot of private-equity capital chasing ASX-listed companies currently; and inexpensive, defensive and cash-generative businesses like Navitas suitably fit their requirements."

In Navitas's case, capital expenditure requirements are also low.

BGH Capital is also understood to be one of the suitors of ASX-listed pet-care business Greencross (ASX: GSL), reports The Australian newspaper.

Founded in 1994, Navitas is an industry leader in providing pre-university and university pathway programs, chiefly to non-English-speaking students in the UK, Canada, Singapore and the US.

Growth prospects are promising, says James. "Since listing in 2004, the company has grown rapidly. We expect this to continue as it expands internationally. The main threats to this growth are the loss of contracts from partner universities, a high Australian dollar and changes to visa requirements."

Navitas is rated as having no moat by Morningstar, on the grounds that the education sector is competitive with relatively low barriers to entry – rapid advances in online-delivery technology especially favour new players.

However, it does have an important early-mover advantage which has entrenched its position in many universities.


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Roger Balch is a contributor for Morningstar Australia.

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