Education is Australia’s largest services export, but it was hammered by the pandemic – from delivering $40.3 billion in export income in 2019, the contribution of the education sector plunged 37%, to $25.5 billion in 2020.
But the industry is in recovery mode, with the Department of Education, Skills and Employment expecting export income to recover to $39.8 billion by 2025.
According to data from the Organisation for Economic Co-operation and Development (OECD), before the COVID-19 pandemic Australia was the third-most popular market in the world for international students, hosting 10% of all international students in the OECD, behind only the United Kingdom (13%) and the United States of America (22%). But there are signs that Australia could move into the top two, as new students from growth markets such as Thailand, Nepal, Colombia, Pakistan and other emerging markets join students from the country’s top markets, China and India, attracted by Australia’s considerable language and lifestyle benefits, and the high global reputation of its leading universities.
That is only a small part of the global education market, which prior to COVID was considered to be on track to reach $US10 trillion by 2030, according to education researcher HolonIQ.
A group of Australian stocks participate in this market, either by providing services to the students coming to Australia, or by developing services and products that can be offered to the education and “EdTech” markets globally. It is a sector that is emerging as a high-growth opportunity, and here are three of the most interesting stories in it – with the caveat that net profit and dividends with this trio are thin on the ground at this stage.
- NextEd Group (NXD, $1.185)
Market capitalisation: $260 million
12-month total return: 82.3%
Three-year total return: 87.4% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: $1.80 (Stock Doctor/Refinitiv, three analysts), $1.775 (FN Arena, two analysts)
NextEd is one of the biggest providers of English-language courses for international students, and also runs an agency to recruit students out of Europe and South America.
The company offers a broad range of courses including ELICOS – or English Language Intensive Courses for Overseas Students, which applies to students studying in Australia on student visas – as well as: management, technology and design; business; hospitality; health; community services; building and construction; and technology. In terms of delivery, its courses range from wholly online courses delivered to students around the world, to specialist computer coding boot-camps in Australia, featuring structured industry internships. NextEd puts a lot of effort into feeding English-language students into other of its vocational and higher education courses, to maximise student lifetime value.
Across the English language, vocational and higher education sectors, NextEd serves about 25,000 students a year – but international students account for just over three-quarters of NextEd’s revenue. In the first half of FY23, revenue jumped 138%, to $43.6 million, while EBITDA (earnings before interest, tax, depreciation and amortisation) surged more than four times higher, to $6.6 million, and the company turned a net loss of $4.3 million in the first half of FY22 into a net profit of $500,000. Along the way it boosted its cash reserves by 28%, to $38.6 million.
NXD lifted its numbers of English-language students to more than three times pre-Covid peak levels, at 4,173, and the company said it expected this to increase further over the balance of FY23 and in FY24 – the record number of English language students is driving future revenue and profit growth. NextEd said when reporting the December 2022 half-year result that revenue and profit were expected “to materially increase in H2 FY23 and FY24.” It’s only early days in terms of net profit for NextEd, and there won’t be a dividend for quite some time, but the small number of analysts that follow the stock like the story a lot.
- Janison Education Group (JAN, 44.5 cents)
Market capitalisation: $106 million
12-month total return: –1.1%
Three-year total return: 6.8% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: 68.1 cents, (Stock Doctor/Refinitiv, five analysts), 75 cents (FN Arena, two analysts)
Upside 53%
Edtech stock Janison Education Group announced last month that it would extend its agreement with Australian-government-owned Education Services Australia (ESA) to provide the platform that powers NAPLAN (the National Assessment Program – Literacy and Numeracy) testing online nationally around Australia.
The new deal has an initial term of three years plus three additional optional years, with a value of more than $24 million for the full six-year term – the biggest contract in the company’s history.
NAPLAN online is a computer-based assessment used to measure the literacy and numeracy skills of Australian students in Years 3, 5, 7, and 9, across all schools nationally.
The platform is used by more than a million students annually and is the product of many years of development between ESA, Janison and Microsoft.
Under the terms of the new agreement, Janison will continue to provide ESA with the essential technology, support, and maintenance services required to administer the NAPLAN Online test. By leveraging Janison’s platform, ESA aims to enhance the efficiency, effectiveness, integrity, and data security of the NAPLAN program. Janison will also work with ESA to develop new features and functionality.
NAPLAN is one of the largest – if not the largest – school assessment programs in the world: in March 2023, Janison’s platform delivered 4.4 million NAPLAN Online tests for 1.2 million students, at its peak, more than 300,000 students were participating in the exam simultaneously.
In April, Janison signed a deal to provide its digital assessment technology and event support services to Oxford University Press (OUP), which the educational publisher will use to develop and deliver a range of new and existing assessment products globally. This followed a September 2022 deal with Cambridge University Press (CUP), under which the latter will also develop and deliver a range of existing and new assessment products globally.
Announcing the OUP deal, Janison reiterated its previous guidance for FY23 revenue ($41 million–$43 million, compared to $36 million in FY22) and earnings before interest, tax, depreciation and amortisation (EBITDA), of $4 million–$5 million, compared to $1.9 million in FY22. However, the company won’t be profitable at the net profit level – or pay a dividend – until FY25 at the earliest.
Janison already runs what it calls “high stakes” large-scale online assessments to millions of students in almost 120 countries, for organisations including the Australian federal and state governments, Chartered Accountants ANZ, British Council, the University of London, the Organisation for Economic Co-operation and Development (OECD), and the Singaporean government. The company works with clients throughout the entire transition from paper-based to online exams; as it says, it provides the software, the support and the content needed for any exam event, anywhere in the world, on almost any device, any browser, any network capability. The company is superbly poised to leverage the huge potential growth in online education and professional assessment around the world, and analysts like the story.
- Cluey (CLU, 10 cents)
Market capitalisation: $20 million
12-month total return: –79.1%
Three-year total return: n/a
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: 32.5 cents (Stock Doctor/Refinitiv, two analysts)
Educational support services company Cluey has disrupted the student tutoring market in Australia, and is now working on global expansion, initially into New Zealand and the United Kingdom. The company is riding the global shift to online learning, which it says was already happening before COVID-19, but which was turbo-charged by the pandemic.
Cluey provides a personalised, face-to-face online tutoring experience for students in Years 2-12, in interactive tailored learning programs across Maths, English, Chemistry and digital “coding.” In the first half of FY23, its tutors conducted 315,600 student sessions (up 33%), to 34,100 active students (up 44%). On the back of those rises, revenue rose 32%, to $20.8 million, and gross profit surged 39%, to 11.8 million, on a gross margin of 57%, up three percentage points.
Cluey has grown quickly – it is Australia’s fastest-growing online tutoring and learning service – as parents have sought a more professional tutoring service rather than relying on what it calls the ”pay and pray” approach of hiring a university student or a family friend and hoping that works for their child. Its growth has been accelerated by the pandemic – the company estimates that 1.6 million students used paid or unpaid tutoring in FY22, as Covid-19 lockdowns disrupted schooling – and also by rising cost-of-living pressures: many parents find they cannot afford private schools but use Cluey Learning to augment and support the education that their children receive.
Cluey uses sophisticated data and learning analytics to improve the offering to students. The platform is highly scalable, and as it continues to scale-up its offering and reduce its costs, Cluey has forecast that it will be profitable by the fourth quarter of FY24. It expects to achieve breakeven at 66,000 sessions a month: it averaged 44,000 sessions a month in the first half of FY23. The company is now live in New Zealand and has completed a “successful” pilot program in the UK.
However, investors have to go into Cluey understanding that the company needs to balance its growth and its costs and try to push toward eventual profitability – that’s what it is doing right now. Cluey had a difficult quarter in the March quarter, and actively reduced its growth rate and cash burn, but it expects the cost savings it made to flow through to $8.4 million in annual savings going forward, $3.6 million more than previously announced in the half-year FY23 results. After raising $9.5 million in March through a combined placement and rights issue, Cluey is well funded for now, and analysts think it can capitalise on its growth prospects.
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