Morningstar | Corporate Action: Navitas Shareholders Should Vote for the Scheme of Arrangement
We recommend shareholders in no-moat-rated Navitas vote in favour of the BGH Capital consortium’s Scheme of Arrangement at the Scheme meeting on June 19, 2019. We think the offer is attractive considering it’s 34% above the prebid share price and 14% above our AUD 5.10 standalone fair value. The offer implies a fiscal 2019 price/earnings ratio of 27 and dividend yield of 3.2% versus a P/E of 24 and yield of 3.6% at our fair value. Our fair value is equal to the offer price of AUD 5.825 as we believe the Scheme has a high probability of success. Considering the high probability of the Scheme being approved, shareholders should consider selling on market, at the current market price of AUD 5.80, and avoiding the opportunity cost of waiting for the takeover process to conclude.We think the BGH consortium’s offer has a strong chance of approval as it is supported by Navitas founder and ex-managing director Rod Jones and major Navitas shareholder AustralianSuper, with a combined shareholding of around 18%. Mr Jones is the largest Navitas shareholder, with 13% of the shares, is a director of the company, and was chief executive officer until June last year. This means he has an excellent understanding of the business and strong relationships with employees, not least with his son who leads the SAE division. We also think the Scheme will benefit from the concentrated shareholder register, with around 90% of Navitas shares held by just 20 entities. In addition, the share price slump which followed the initial rejection of the offer by the Navitas board in late 2018 will probably encourage shareholders to vote in favour of the offer.
Navitas provides educational services to domestic and overseas students. Co.'s segments are: University Partnerships, which delivers education programs, via pathway colleges and managed campuses, to students requiring a university education; SAE Institute, which delivers education programs in creative media including courses in audio, film and multimedia; and Professional and English Programs, which delivers English language tuition, jobs skills training and higher and vocational education in health, security and psychology, and is comprised of four business units: English and Foundation Skills, Careers and Learning Skills, Navitas Professional Institute, and Training and Development.
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