I ran a screen for companies with low price to average earnings of last 5 years. Aptech Ltd. attracted me because of a high dividend yield (over 7%) and some known brand name.
Business
Aptech has two main streams of businesses – Individual training and Enterprise Business.
Under Individual Training, Aptech offers career and professional training through its Aptech Computer Education, Arena Animation & Maya Academy of Advanced Cinematics (both in Animation & Multimedia), Aptech Hardware & Networking Academy, Aptech Aviation & Hospitality Academy and Aptech English Learning Academy brands.
Enterprise business includes Content Development (Aptech Learning Services), Training and Assessment Solutions for Corporates & Institutions (Aptech Training Solutions, Aptech Assessment & Testing Solutions).
As per the last investor's presentation, the enterprise business contributes around 20% of the revenue.
The business of computer education looks attractive to me. Most of the company's revenue come from animation and computer education courses. Unlike specialized coaching centers for competitive exams, these courses are more methodological and do not depend on the specialization of a particular local teacher. The company prepares the educational content and provides it to its franchisees for a royalty. This is more of a fixed cost and does not increase in proportion to the revenues. This is evident from an increase in the margins over the years as the company has entered new geographies.
For students, though the company does not provide a degree, the certificates provided matter more than the certificates from local computer institutes because of a better visibility of the "Aptech" brand.
I wanted to understand why other education businesses including Educomp failed. This Forbes article provided a hint for that:
“The risk is that this technology sales model becomes akin to the sub-prime mortgage scenario that caused the credit crisis in the US. Like in the US where loans were given to people who did not have the repayment capacity, there is some danger that ambitious schools looking for a magic bullet are buying hardware and software they ultimately can’t afford,” says Karan Khemka, a partner with Parthenon, a strategic advisory firm with a special focus on education.
“It is the job of a financing institution, not an educational services vendor, to finance a school. Otherwise you end up bearing business risk, execution risk and financing risk. That’s too much to bear,”
The above risk looks low because Aptech maintains an asset light balance-sheet and carries no debt.
Financial overview
Recently, Aptech started paying dividends and has increased the interim dividends from Rs.1.5 to Rs.2.5 per share.
The company also bought-back shares worth 88,97,861 at average Rs.67 during the last financial year.
Market cap (3.989 cr sh. @ 74): 295.18 Crores. Total Tangible Assets (2014): 266.15 Crores. 5 Year Average Earnings (PBT): 37.61 Crores. Yield: 12.74% Yield on Max Earnings: 24.73% CMP: 74.00 EPS: 6.35 Dividend per share (interim): 4.50 (final dividend is awaited)
Speculative side
Company has 110.84 Crores in a private investment in China. Till 2009, the investment was a joint venture, as a result its profits were consolidated in Aptech's results. Since 2010, Aptech exchanged the 50% stake in the joint venture for a 22.40% stake in the venture's holding company. Financial details about the company are not available. This investment now only receives periodic dividends 1.
Summary
Overall Aptech has an speculative appeal with a limited downside (due to an attractive dividend yield and a consistent business). If the company is able to maintain the growth trend and keep up the dividend payouts, the stock can easily double from here over 3 years. A surprise dividend from the China investment can also provide a good upside.
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The investment paid a dividend of total 82 crores in 2011 and 2012. No dividend was paid in 2009, 2010, 2013 and 2014. ↩