This Brazilian medical education company is forecasted to grow earnings at a rate of 42.3% next year.
Afya Limited (AFYA)
From SmallCap Informer
Afya is a leading medical education company based in Brazil. The company operates a physician-eccentric system of learning tools, delivered both online and in-person, that serve medical students and doctors through their medical residency preparation, graduate programs, and continuing medical education activities.
Afya’s innovative approach combines integrated content, interactive learning, and an adaptive experience to create personalized learning that mirrors one-on-one training. Its health sciences courses include training in medicine, dentistry, nursing, radiology, psychology, pharmacy, physical education, physiotherapy, nutrition, and biomedicine.
The company also offers degree programs and courses in other subjects and disciplines, including undergraduate and post-graduate courses in business administration, accounting, law, civil and mechanical engineering, industrial engineering, dentistry, nutrition, physiotherapy, psychology, architecture, veterinary medicine, and other subjects. In addition, the company provides distance learning residency preparatory courses through its online platform; and develops and sells printed and digital medical education content. Afya operates a network of 19 undergraduate and graduate medical school campuses, and is the largest operator of private medical schools in Brazil. Occupancy for new seats is 100%, and any drop-outs are quickly replaced.
Besides its education products, Afya also offers practice management, telemedicine, and electronic records solutions, and a leading clinical tool app used by doctors.
Afya was founded in 1999 and is headquartered in Nova Lima, Brazil. Brazil is the world’s fifth-largest country by area and the sixth most populous with more than 211 million people. The number of physicians per 1,000 inhabitants is much lower in Brazil than in other developed countries, most especially outside urban areas. The senior population in Brazil is growing twice as fast as in the U.S., and three times as fast as in the U.K. As a result, medical careers are very attractive, with employability above 97% and average salaries higher than for engineers. With demands for continuing education, physician remain lifelong customers.
The company listed its shares on Nasdaq in July 2019. From 2017 through our estimates for fiscal 2020, Afya has seen revenues grow an average 53.2% a year while EPS grew 68.2% annually. In the third quarter ended September 30, 2020, EPS grew 9.7% on revenue growth of 10.6%. Analyst estimates and company guidance for the fourth quarter ending December 31, 2020, look for 15% revenue growth and 45% EPS growth.
Afya has recently made inroads in the digital realm with its acquisitions of PEBMED, iClinic, and MedPhone. It reports that the integration of these tools has been proceeding successfully and has helped the company reach 85% of its IPO three-year target of adding 1,000 medical seats.
We project long-term growth for the company’s revenues and EPS of 15% a year or greater. Analysts are projecting sales growth of 27.7% for the next two years, and we expect EPS growth in the next two fiscal years to also be above 20% annually, so our conservative outlook could have an even greater upside.
Pre-tax profit margins are strong, though with only a few years of data a trend is hard to discern. The company’s average margin of 23.7% place it near the top of the Education & Training Services industry group, In Q2 and Q3, TTM margins ran above the 30% level. Afya has a solid cash position and minimal debt. As with any company operating outside the U.S., there are risks that results when converted into U.S. dollars may be better or worse than as reported in Brazilian reals.
We see Afya’s shares reaching $45 by fiscal 2025, with a downside of 20% from the current price of $22.50. The reward/risk ratio is 4.9-to-1 and the projected total return is estimated at 14.7% annually over the next five years.
Doug Gerlach, Smallcapinformer.com, 1-877-33-ICLUB, March 2021