William Blair Starts Nord Anglia Education (NORD) at Outperform

William Blair initiated coverage on Nord Anglia Education (NYSE: NORD) with an Outperform rating.

Analyst Timo Connor estimated the company would generate adjusted earnings per share of $0.28 in fiscal 2014 and $0.73 in fiscal 2015. The company’s fiscal year ends in August. “Nord Anglia has built a capital-efficient business model by acquiring established schools or partnering with real estate developers to fund organic expansion,” Connor said.

“The company has grown dramatically, with compound annual enrollment growth of 36% since 1993. Customers spend on average 3.57 years and $104,000 with Nord Anglia, and unlike many for-profit education businesses, the company spends virtually nothing on marketing, has extremely high retention rates, and receives no government funding. Recently, the company expanded into new geographies that significantly increase its addressable markets. We believe the premium K-12 schools market is quite fragmented; the five largest providers account for less than 2% of the entire market’s revenue. Nord Anglia’s high-quality education offering, private-pay model, experienced management team, and established local brand will enable strong enrollment growth and significant market share capture in the coming years, in our view.”

Connor continued, “We expect strong capacity growth through a combination of same-site capacity expansion, greenfield site additions, and school acquisitions. We believe capacity utilization should expand in the coming years, allowing enrollment to grow faster than capacity. In addition, the company used proceeds from its recent IPO to pay down high-interest-rate debt and has refinanced the remainder of its debt at more attractive rates, which should allow for further deleveraging. We view the valuation as attractive for a company with strong revenue visibility and limited cyclicality that we are confident can consistently increase EPS at 20% or better for many years.”

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For an analyst ratings summary and ratings history on Nord Anglia Education click here. For more ratings news on Nord Anglia Education click here.

Shares of Nord Anglia Education closed at $20.87 yesterday.

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