Today we are going to look at a small company in the Spanish market. It is the small cap Proeduca Altus, a distance learning education company listed on the BME Growth with a capitalization of just €920 million. Its name may not ring a bell, but its university UNIR (Universidad Internacional de La Rioja) is quite well known in Spain. Let’s see where this company comes from and why it may be of interest to our strategy.
Introduction
Origins
The company was created in 2007 by the Catalan businessman Miguel Tomás Arrufat Pujol. The following year, the main school of the group (UNIR) was authorized by the Parliament of La Rioja to teach classes and issue official university degrees, and in 2009 it began its activity with its first 4 faculties: Legal Science and Humanities, Business, Education, and Engineering and Health Science.
Since its beginnings, Proeduca Altus has focused its activity on university degrees and postgraduate courses taught only online in a distance learning model, something that seems more and more normal to us, but wasn’t so in 2009.
Until 2012, the company focused on expanding nationally. And from that date on, the company pursued a strategy of increasing the number of degrees taught in Spain, while pursuing an ambitious international expansion.
In 2012, it created the subsidiary UNIR Mexico and in just one year it obtained approval to teach distance learning courses and grant official degrees in the country. Colombia (2015), Peru (2016) and Ecuador (2017) followed, and also recognized some of UNIR’s degrees. From these countries Proeduca Altus also provides administrative support to all the group’s companies.
In 2016 CUNIMAD was acquired, a university with blended learning degrees in agreement with the University of Alcalá in Nutrition and Dietetics and Piscopedagogy.
Between 2018 and 2019, Proeduca Altus acquired Marconi International University in Miami (USA), which offers both presential and distance learning degrees. Also in 2019, it acquired 80% of the Peruvian Neumann Business School, which also has various postgraduate programs that are taught with blended learning methodologies.
In 2019, it launched the EDIX technological institute, a school that provides distance learning technical degrees on computer science (WEB application development, multiplatform application development…). In the same year, Proeduca Altus went public on the BME Growth at a price of €4.94 per share.
Finally, in 2021 Proeduca Altus acquired the Spanish school Kschool and the Guatemalan university InterNaciones. The first one is a blended learning school for Internet professionals with courses dedicated to Ecommerce, Digital Marketing or Big Data, among others. The second is a distance learning university that offers more than 35 degrees in engineering, economics and health sciences.
As we can see, the expansion of Proeduca Altus went through a first national phase, and then an international one. In parallel, it developed the existing educational offer with many degrees officially recognized in different countries.
Business
Since its inception, Proeduca’s approach has been to develop a highly refined virtual ecosystem to offer distance degrees and postgraduate programs with the same quality as if they were taught with a presential methodology. To achieve this, a tutor is assigned to each student, and the company takes great care to offer an appropriate virtual platform. As a result, most of the classes are given live by a faculty that is at the forefront of distance learning methodologies. It is not an impossible system to replicate for other universities, but it is not easy to adapt schools to be specialized in this type of distance learning, as well as to develop a suitable software platform. It is even more difficult to combine all this with face-to-face teaching, as many universities had to do during the COVID-19.
It is not surprising, then, that Proeduca takes great care of its specialized teachers, who are its real asset. As an example of this, the company’s main shareholder and founder, Mr. Miguel Tomás Arrufat Pujol, contributed 7.5 million euros in January 2021 to reward teachers for their performance during the confinements.
As for the students, while in the 2016-2017 academic year the number of students in Spain was more than double of the students in all international schools combined, in the 2021-2022 academic year students enrolled in international subsidiaries already represented 43% of the Total. Moreover, although Spanish students contribute slightly more to the company’s turnover, this difference is not too significant. It is clear that although Proeduca Altus is growing strongly in Spain, it is growing even more in its international business. In the last 4 years, the number of students has grown by 29% in Spain and 43% in the rest of the world.
Proeduca Altus targets 2 very specific student profiles. On the one hand, adults over 30 years of age who want to take a postgraduate course while working full time. This market niche is increasing given the growing importance of continuous training in any work environment, and the growing number of workers who decide to reorient themselves professionally. It is not surprising that the average age of Proeduca Altus students in August 2022 was 34 years old.
On the other hand, they are also looking for Latin American students who want to pursue degrees at a Spanish or U.S. university (Marconi) without having to leave their home and saving all travel costs involved.
The challenge for Proeduca Altus is to replicate the success of its expansion in Spain in all the American markets in which it is present. The objective is to increase the number of students enrolled, either in existing courses or in new degrees that Proeduca may develop. This has been the trend in recent years, going from 12,660 students enrolled in 2012 (in 70 degrees) to 67,500 in 2022 (in 290 degrees). The idea is to strengthen the offer in Latin America, where demand seems to be strong.
Distance education was already a growing sector before the pandemic, but COVID-19 has boosted it. This means that in the future many universities will probably develop distance learning programs, causing stiff competition in the sector. But there will also be an exponential growth in the number of students willing to take distance learning degrees and postgraduate courses. And there is no doubt that Proeduca Altus has a certain amount of experience and know-how in this field. In addition, having hardly any classroom-based courses makes its business model much more agile and less capital-intensive than its presential learning or blended learning competitors.
As we can see, the main shareholder of Proeduca Altus is its founder, Mr. Miguel Tomás Arrufat Pujol, through the company Proeduca Summa with 76.5% of the capital. Then, Asúa Inversiones owns 10%, Renta Génova another 6% and Alicia Koplowitz owns around 2% of the shares of Proeduca Altus, leaving the number of free float shares at around a meager 5.5% of the total. It is therefore a very illiquid stock. It is currently listed on the BME Growth, but if in the future it increases its capitalization and decides to jump to the Mercado Continuo, it will have to increase its free float. It is therefore possible that in the future Mr. Miguel Tomás Arrufat will have to sell part of his shares or carry out a capital increase to make more shares available to minority shareholders.
Let’s take a look at the Financial Statements to see if Proeduca Altus can be an adequate company for our DGI portfolio.
1) FINANCIAL HEALTH: Balance Sheet
Let’s look at Proeduca’s Balance Sheet.
Short-Term Assets and Liabilities
Proeduca Altus Balance Sheet presents an insufficient Liquidity Ratio of 0.64, and an acceptable Cash Ratio of 0.25. However, it should be looked at in more detail because these ratios do not reflect reality.
We must keep in mind that in order to best reflect sales over the course of a school year, Proeduca Altus ends its fiscal year on August 31. However, by that date it has already collected an advance payment for a good portion of the courses of the following school year. These courses have not yet happened, but the company has already received the payment from students, so we will see a lot of Cash on the Assets side that has to be offset on the Liabilities side. Therefore, it is interesting to do the exercise of eliminating this effect from both Assets and Liabilities.
The resulting Balance Sheet would be:
Please note that this is not a real Balance Sheet, as we have converted all financial investments (Current and Non-Current) to Current Assets to get a better idea of the Short-Term Financial Strength of Proeduca Altus. In other words, if we exclude the fees already collected for next year’s courses and assume that the company sells all of its financial investments, we would be left with a Liquidity Ratio of 1.03. This is already an acceptable ratio. And the reality would be even better since next year’s courses will certainly cost less to Proeduca than what the students have already paid.
So we can rest assured that Proeduca Altus does not have any liquidity problem, nor do we have to worry about its solvency in the short term.
Long-Term Assets and Liabilities
The reality is that Proeduca Altus is a company that needs very few physical assets to operate, since with a few internet platforms it can give as many courses as it wants. Moreover, both its headquarters in Logroño and its offices in Madrid are rented and the events and exams are often held in venues also rented for the occasion.
Therefore, it is not surprising that Fixed Assets represent such a small portion of Total Assets. Furthermore, the company has no Net Debt. With a net cash position of €43 million, it has a Net Debt/EBITDA ratio of -0.82.
The Financial Autonomy, discounting the money received from the following year’s fees, is an acceptable 27%, and the Intangibles and Goodwill do not reach worrying values, even with the acquisitions that Proeduca has made over the last few years.
2) PROFITABILITY: Income Statement 2022
Sales
Sales have evolved spectacularly: they have tripled in just 5 years. We tend to think that the pandemic has boosted the sales of Proeduca Altus, due to the advantages offered by distance education during the confinements. But the reality is that its international expansion plan and the growth of the degrees already offered were already paying off before, and sales continue to grow in the aftermath of the pandemic.
As we have already seen, although international expansion is gaining weight in turnover at a very fast pace, Spain still accounts for 61% of sales, mainly through UNIR university. And it is important to bear in mind that, although UNIR has 5 faculties, the Faculty of Education is the one that contributes most to Sales. Proeduca does not provide in its annual accounts the number of students per faculty, but it does indicate that in 2018 the faculty of Education accounted for 48% of UNIR’s Sales.
In the following infographic we can see the degrees offered by UNIR university (first row) and the other schools and universities (second row):
Margins
Proeduca Altus’ margins are also quite high and growing. It is logical to think that once an online education platform is created, the increase of students and degrees has to report higher margins, since the cost of the online platform does not vary.
Since 2018, it has gone from an Operating Margin of 13% to an Operating Margin of 19%. And it makes sense to think that as the company gains students and offers new titles, it can increase these already good margins. Net Margin stands at a remarkable 13%.
To put ourselves in context, let’s look at their competitors in distance education. The UOC (Universitat Oberta de Catalunya) and the UNED (Universidad Nacional de Educación a Distancia) generated losses in the last published financial year. This is something unfortunately quite common in public universities, although the UOC is privately managed. And many distance universities are non-profit entities. This could be a strong competition for Proeduca Altus, since these universities do not need to make money and could lower their prices. However, the lack of a profit also means that there is not much incentive to perform well, and the reality is that the Spanish distance universities that are growing the most in number of students are those of the Proeduca Altus group.
Profitability Ratios
ROA: 16% (Net Income/Total Assets)
ROE: 184% (Net Income/Equity)
ROCE: -186% (EBIT/(Equity + Net Debt))
These Profitability Ratios tell us a lot about Proeduca Altus’ business.
On the one hand, the ROA is very high, and indicates that it is a business that generates a lot of Profits from very few Assets.
ROE is stratospheric since Net Income is very high compared to Net Equity. And ROCE is negative since Proeduca Altus’ cash position is greater than its Equity.
Very good profitability ratios in a very asset-light business.
Earnings per Share (EPS)
Earnings per share have been growing at an average of around 25% per year over the last 5 years. This rate of EPS growth leads us to believe that it is normal for it to trade at a fairly high P/E, given the potential growth of its Net Profit. Some may think that these figures are distorted by the pandemic, but we can see that both before and after the confinements, the distance education offered by Proeduca Altus had very high growth rates.
3) DIVIDEND
Dividend per Share (DPS)
It is still too early to judge the evolution of Dividends in a company listed only since 2019. However, in the informative document of incorporation to BME Growth, Proeduca Altus explicitly says that it intends to distribute between 50% and 70% of Net Profit, depending on its obligations and financial situation.
However, this past fiscal year the payout has exceeded 100% and Proeduca Altus has distributed a dividend of almost €0.80/share. This means that at current prices, the initial dividend yield of Proeduca Altus is 4%. A very high dividend yield for a company with high growth prospects.
Assuming a growth of only 10% per year (very conservative for a growth stock of this type), in 5 years we would have a Dividend Yield of around 6.5%.
These are only projections, but there are clear indications that this company may be a good fit for a DGI-focused portfolio.
Payout (DPA/BPA)
As the company indicates, the payout should be between 50% and 70%. This is a fairly high payout for a company focused primarily on growth, but its light capital business model allows it to do so.
Cash Flow
1) Cash Flow – Maintenance CAPEX
The first thing that stands out in Proeduca Altus’ Cash Flow Statement is that the Maintenance CAPEX is very low and the Operating Cash Flow is very high and increasing. This graph confirms that the company is not very capital intensive and that it is a great cash generator.
2) Cash Flow – Maintenance CAPEX + Investment
If we consider the CAPEX of Maintenance + Investment, we see that the company’s Operating Cash Flow is still much higher and growing than the CAPEX. This explains why Proeduca Altus has such a high Net Cash position, which has then to be invested in different financial assets for this cash to generate some profitability.
3) Cash Flow – Total CAPEX
Therefore, when we look at the total CAPEX (Maintenance + Investment + Other), the graph becomes much more erratic, since it is distorted by these financial investments that Proeduca Altus makes to generate extra profitability, but which do not reflect the reality of the business.
Share Repurchases
There is little to comment, given that in its short existence on the stock exchange, Proeduca Altus has not changed the number of shares.
It is possible that in the future the number of shares and the shareholding structure of the company will be altered: if the company is revalued above 1 billion euros and decides to make the jump to the “Mercado Continuo” stock market, it will have to comply with the regulation of having at least 25% of free float shares.
Conclusion
Today we have seen a small, very atypical company on our blog. With such small companies you must be much more cautious than usual, as they can have a higher volatility and be affected more quickly by any setback.
However, the analysis of Proeduca Altus leaves us with an optimistic feeling, given that it is a company with a remarkable solidity. With no Debt (and a high Net Cash position), it shows us a business that needs very little capital to operate and has a good Profitability.
In addition, times of crisis can be favorable for Proeduca Altus, since crises are when many people decide to study to boost their employability.
Competition in the world of distance learning universities will undoubtedly increase in the future, as we have all become accustomed to doing a lot of work online in the wake of the pandemic. Even so, Proeduca Altus is in a good position to capture a good part of its market share, as they have had experience in online education market for over a decade. The demand for online education is expected to double over the next decade, and in recent years the number of higher education students in Latin America has grown by more than 21% per year on average. And the market to be explored is still very large given that, in a country like Spain (which Proeduca Altus already considers mature), the number of online university students only represents 6% of the total.
In addition, Proeduca Altus is a company committed to distributing its profits through a high Payout. Given that the company’s prospects are very optimistic, with a sustained growth in EPS through an increase in the number of students and the development of more study offerings, it is to be expected that these Dividends will grow in the future.
Therefore, although we will have to keep a close eye on this small company, we believe it could fit our strategy. Perhaps not as one of the largest positions in our portfolio, as it has more risk than other larger-cap companies, but it also has more potential.
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Sources consulted:
Annual Accounts (2015-2020)
www.unir.net
Informative Document of Incorporation to the MAB https://www.libremercado.com/2020-11-07/caso-de-unir-proeduca-coronavirus-catapulta-exito-ensenanza-online-6671733/
https://www.rankia.com/blog/aldea-del-valor/4962066-analisis-empresas-ii-proeduca-pro-perla-bme-growth
https://nuevecuatrouno.com/2019/03/21/grupo-proeduca-unir-universidad-florida-marconi-miami/ https://cincodias.elpais.com/cincodias/2020/10/22/mercados/1603387364_163344.html
https://www.elespanol.com/invertia/mercados/20201121/proeduca-revelacion-bme-growth-confinamiento-prisas-continuo/537447633_0.html https://www.rankia.com/blog/mab/4191555-proeduca-sale-bolsa-valor-mercado-223-millones https://elpais.com/economia/2019/03/14/actualidad/1552584886_305376.html https://www.europapress.es/economia/noticia-proeduca-apuesta-koplowitz-reparte-nuevo-dividendo-016-euros-16-agosto-20210806183122.html https://valenciaplaza.com/sicavs-alicia-koplowitz-morinvest-juan-abello-arbarin