CIBT Education Group Inc. (TSX: MBA) is an education service and academic real-estate company with 46 locations. Its education subsidiaries, including Sprott Shaw College, service more than 11,000 students annually.

Why Should Investor’s Book profit?

• Lower profit margin v/s industry median: In FY21, the company reported a lower profit margin than the industry median, which indicates weak operational efficiency and remained as major concern. Notably, EBITDA margin and operating margin stood at 13.2% and 6.7%, respectively, as compared to the industry median of 16.9% and 10.8%, respectively.
  

• Poor working capital management: During FY21, the company reported its quick ratio and a current ratio of 0.34x each, as compared to the industry median of 1.64x and 1.88x, respectively. The above indicates that the company is struggling to meet its current liabilities with its current assets.

• Highly leveraged: The company’s balance sheet is significantly leveraged, with a Debt/Equity ratio of 5.13x, significantly higher than the industry median of 0.41x, which implies a greater balance sheet risk. Moreover, the group reported its net debt to EBITDA of 27.44x, significantly higher than the industry median of 1.98x. A higher ratio suggests a poor debt protection ability of the firm. Notably, due to the rise in total debt, the group reported a 53% y-o-y jump in the finance costs of CAD 12.513 million in FY21.

Stock Recommendation:

In FY21, the group reported its cash conversion period of 153.2 days, as compared to the industry median of 9.5 days. The above indicates that the organization is taking considerable time to convert its inventory to cash flow. The MBA stock is available at a significantly higher EV to Sales multiples of 7.2x on TTM basis, as compared to the industry (Professional & Commercial services) median of 2.3x. Considering the aforesaid facts, we give a ‘Sell’ rating on the stock of MBA at the current market  price of CAD 0.60 at 9:45 am Toronto time on January  10, 2022.

 One-Year Technical Price Chart (as on January 10, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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