CIBT Education Group Inc. (TSX: MBA) is one of the largest education, and student housing investment companies in Canada focused on the domestic and the global education market since 1994. CIBT owns business and language colleges, student-centric rental apartments, recruitment centres and corporate offices at 45 locations in Canada and abroad. The company's primary business units consist of three categories with Corporate (head office) as the supporting hub: Education related real estate: GECH; Education: SSCC, SSLC/VIC, GEA, and CIBT China; and Media: IRIX. The company's operating entities are as follow:

Source: Company Filings

Investment Rationale

Well Positioned to Capitalize on Canada's Growing Student Housing and Education Demand: Given the current headwinds in the global economy spurt by the outbreak of COVID-19 pandemic, businesses have had to adjust and anticipate changes in order to stay ahead of the competition. However, regardless of these headwinds, the group's revenue from Sprott Shaw College increased 8% y-o-y from CAD 25.8 million to CAD 27.88 million due to the higher registration of Canadian students returning to school. The company is carrying a 20-years of experience in the education sector and approximately 6 years of experience in the education-related real estate projects. Also, the company's diversified business model and application of decades-long expertise have created a competitive edge for the company against the competition, and once the current turmoil passes, we believe the company will be in an even stronger position to capitalize on Canada's growing demand for student housing and education.

Insiders Are Buying Shares, A Positive Sentiment Emerging Around the Stock: Over the past three quarters, the insiders are a net buyer in the company. Insider buying refers to the purchase of shares in a corporation by a director, officer, or executive within the company. One should not get confused between insider buying and insider trading. If an insider increases stake in a company, the act may be taken as a sign of confidence in the company's growth and earnings. The insider may believe that the strategies put into action by the executive leadership will result in greater market presence, increased profit, and other opportunities for the business. The size of the buying is also significant as large purchases signal greater confidence compared with small insider buys.

Source: MarketBeat

Relative Strength of CIBT Education Group Inc’s Shares is Significantly Higher:  From the relative strength standpoint, MBA shares have reported strong strength against the benchmark index and the sector peer. The group’s shares have increased approximately 22% in the past five trading session, 38% in 1-Month, 30% on a YTD basis and outperformed the benchmark index by 22%, 34% and 19%, respectively. This shows a strong relative outperformance of the group’s shares against the benchmark index.

Relative Price Performance of MAB. Source: Refinitiv (Thomson Reuters)

Stock Hovering in a Bullish Trend: At the last traded price, the group’s shares traded above the crucial long-term as well as short-term support levels of 200-day, 100-day, 50-day and 30-day SMAs. This reflects an uptrend in the stock. Further, Price/200-day SMA ratio of the stock stood at 1.16x, which implies that at the last closing price, shares have traded approximately 16% above the 200-day SMA. A higher positive spread between last traded price and 200-day SMAs indicates a strong upside momentum in the stock.

Source: Refinitiv (Thomson Reuters)

Risk Associated to Investment: The company is exposed to balance sheet risks, given the higher Debt contribution in the total capital. However, the company has consistently made the interest payment on time and expected to do so in future. Also, the company is exposed to the next phase on COVID-19 outbreak, which might weigh on the group’s education and rental segment revenue.

9MFY20 Financial Highlights

Source: Company Filings

Key Takeaways:

• In the 9MFY20, the group's revenue from Sprott Shaw College increased 8% y-o-y from CAD 25.8 million to CAD 27.88 million due to the higher registration of Canadian students returning to school.
• Rental revenue declined marginally by 4% on a YoY basis to CAD 8.15 million, primarily because of COVID-19 impacts on student and visitor traffic arriving in Vancouver.
• The group's revenue from language school divisions, which is international students centric, plummeted during the period under consideration because of lockdown announced in most of the countries in the wake of COVID-19 pandemic.
• Group's EBITDA for the period improved by 10% to CAD 14.38 million from CAD 13.08 million in the year over period. However, Net Income of the company came in marginally lower at CAD 5.45 million against CAD 5.69 million reported in the previous corresponding period. Earnings per share on a diluted basis increased from CAD 0.03 to CAD 0.07 per share, reflecting a 133% increase.
• Further, the group's properties, including GEC® Viva, GEC® Granville, GEC® Burnaby Heights, and GEC® Pearson, remain fully operational, and most locations are filling up at a steady pace as Metro Vancouver enters into the recovery phase of the COVID-19 outbreak.
• Also, during the third quarter, many educational institutions have partnered with the group's new initiative to ensure the safe re-opening of their schools while entrusting GEC® properties to accommodate their students.
• The company's book value per share improved by 17% to CAD 0.66 as on May 31, 2020.
• Further, CIBT enrolls over five thousand domestic students within their colleges and seven thousand students from 50+ countries. Considering the COVID-19 pandemic in British Columbia is generally under control in Metro Vancouver, according to British Columbia's Ministry of Health, the group is experiencing a high volume of domestic and international student inquiries from Eastern Canada and the United States wishing to transfer their studies to Metro Vancouver.
• Moreover, CIBT is well positioned with an established education platform to capitalize on the current market conditions. While the enrollment for many colleges and universities are holding steady, the group's student-centric rental apartments are providing the much-needed accommodation service to these school partners.

Top Share Holders

The top 8 shareholders have been highlighted in the table, which together forms around 34.6% of the total shareholding. Shane Corporation S.à.r.l. and Chu (Toby Y C) holds the maximum interests in the company at 10.36% and 4.20%, respectively.

Source: Refinitiv (Thomson Reuters) 

Stock Performance

Despite a challenging time and heightening uncertainties over the global financial markets, Shares of MBA held steady and featuring a positive price return of 7% on a YoY basis and outperforming the benchmark index in the same time. Also, its shares are featuring a positive return over the last three months, 1-Month and 5-day and up by 30%, 38.3% and 22.6% and significantly outperformed the benchmark index and sector peers in the periods above mentioned.

1-Year Price Performance (as on September 01^st, 2020). Source: Refinitiv (Thomson Reuters)

Over the last 52W, MBA shares have tested a 52W high of CAD 0.76 on October 01, 2019 and a 52W Low of CAD 0.40 on March 26^, 2020 and at the last traded price of CAD 0.65, its share traded approximately 14.5% below its 52W high price level and 62.50% above its 52W Low price level, respectively. This reflects that its shares are more tilted towards the 52W High.

Valuation Methodology: Price to Sales Based Valuation Metrics

Note: All figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation: The group's performance in the third quarter was decent despite challenging market condition. Further, the group the has a diversified business model, and application of decades-long expertise have created a competitive edge for the company against the competition, and once the current turmoil passes, we believe the company will be in a stronger position to capitalize on Canada's growing demand for student housing and education.

Also, over the past three quarters, the insiders are the net buyer in the company, typically when an insider increases stake in a company, the act may be taken as a sign of confidence in the company's growth and earnings.

Also, technical indicators are moving favourably in the stock. At the last closing price, its shares traded above the crucial long-term as well as short-term support levels of 200-day, 100-day, 50-day and 30-day SMAs. This reflects a strong uptrend in the stock.

Therefore based on the above rationale and valuation done using the above methodology, we have given a "Speculative Buy" recommendation at the closing price of CAD 0.65 (as on September 01, 2020), with double digit upside potential, based on the NTM Peer's Average Price-to-Sales Per Share of 0.89x, on the FY20E Sales Per Share.

 *Recommendation is valid at September 2, 2020 price as well.

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