Yduqs (YDUQ3) jumps 10%, Cogna (COGN3) operates stable: results were good, but why such different performances?

After very challenging quarters due to the pandemic, education companies have recorded significant improvements in their numbers, as signaled by both Cogna (COGN3) and Yduqs (YDUQ3) in their 2022 first quarter numbers.

However, the performance between them is quite different. While YDUQ3 skyrocketed, with a jump of 10.66%, at R$16.72, around 2:15 pm (Brasília time), COGN was operating stable at the same time, at R$2.61.

Despite both recording results celebrated by analysts, and with high profits (from 58.7% for Cogna and 75.9% for Yduqs), the scenario is generally seen as more cautious for Cogna, with analysts still having, in for the most part, a more conservative view of action. As for Yduqs, the positive data reiterated the buy or equivalent recommendation of many analysis houses. Check out the highlights of the results:

Yduqs: margin and scale gains

Among the preferences of analysts in the education sector, Yduqs presented figures for the first quarter of 2022 that proved the company’s good performance. Bradesco BBI points out in an analysis that the company is on the path of double-digit growth in earnings before interest, taxes, depreciation and amortization (Ebitda).

Yduqs reported 10% higher adjusted net revenue year-on-year, with strong performance in distance learning (EAD) and in the premium segment, highlights the bank’s analysis. The distance learning segment (EAD) continued to lead growth, expanding by 28% in the year, driven by a 45% growth in the undergraduate student base, partially offset by a 6% lower average ticket. The strong growth in enrollments was the result of new hubs and the maturing of old hubs.

Meanwhile, the premium segment (22% of the total) grew 25% in the period, reflecting a mix of higher volumes (more vacancies in the medical course and enrollments at IBMEC) and the readjustment of monthly fees (9.1% in medicine and 11, 5% at IBMEC). In turn, the on-campus segment improved, with a 5% drop in the year, against an 11% decline recorded in 4Q21. The undergraduate student base reversed the trend and grew 1.6% in one year, but was more than offset by 7% lower tuition.

The monthly fee, by the way, was the subject of the earnings conference call this Friday. Eduardo Parente, CEO of Yduqs said that, in the pandemic, competition was aggressive, with an environment of inflation that was not passed on to the ticket by education companies. He said that, now, with the return of full classrooms, the company and others in the sector are looking to recover prices, with “a more rational environment than in the past”.

This is also true for distance learning, also on account of “a greater understanding of the consumer” of the inflationary environment as a whole.

Yduqs also signaled that it expects higher margins in 2022. Rossano Marques, the company’s CFO, said that higher-margin businesses have been growing slightly above average. This should lead to a “slightly higher” figure than in 2021, by around 1 and 2 percentage points. In the first quarter, the Ebitda margin (Ebitda over net revenue) increased by 4.3 percentage points to 33.2%.

BBI’s recommendation for the share is outperform (a performance above the market average), with a target price of R$23, highlighting the current valuation, in addition to the expected improvement in earnings and strong market positioning.” We note, however, that these good results in 1Q22 were aided by lower marketing expenses, while for the rest of the year our expectation is for stabilization as a percentage of revenues,” said the analysts.

Credit highlighted that Yduqs recorded margin gains in the on-campus segment and growth in distance learning. Analysts point out that the high student additions are a good sign of recovery, but the alert remains for the possibility of a high dropout rate during the first semester (macroeconomic pressures on income and inflation).

However, Credit Suisse points out that the result remained under pressure (R$ 76 million, 6.4% of net margin), since the increase in interest rates caused financial expenses to grow 36.8% on an annual basis. Even so, the company has been performing consistently despite industry pressures and is starting to benefit again from gains in scale. The outperform recommendation (a performance above the market average) was maintained, with a target price of BRL 35.

Morgan Stanley highlights the strong enrollment of students, albeit at lower prices, with the digital segment above expectations. For the bank, Yduqs’ balance sheet situation is comfortable, with a leverage of 1.7x, in a good position to continue investing in digital transformation and smaller M&A (mergers and acquisitions).

In the education sector in Latin America, Morgan Stanley highlights that it prefers players leveraged by the potential for on-site recovery and solid balance sheets, but also with exposure to distance learning, such as Yduqs itself.
The recommendation is overweight (weight above the portfolio average) with a target price of BRL 28.

Cogna: right path, but still a long way to go

For Cogna, analysts continue to see progress in the numbers, but still point out that the company has a long way to go, as XP highlighted in its balance sheet analysis report.

Rafael Barros, an analyst at XP, assesses that the company reported neutral results. Net revenue grew 6% per year (in line with the estimate), boosted by Vasta, but “muddled” by Kroton.

Adjusted Ebitda margin grew 3.6 pp yoy to 34.1% (1.5 pp above XP’s estimate), mainly driven by a sharp increase in Vasta’s margin.

“The results seem to indicate that the company is gradually recovering its profitability, although we still don’t see enough positive signs to change our cautious view in relation to the shares”, he says. The recommendation is neutral with a target price of BRL 3.10.

For Credit Suisse, the turnaround efforts, combined with better cash discipline, are paying off for the company. Operating performance has been improving, which is essential to provide comfort in future cash flows given the high leverage (4.5x net debt/Ebitda IFRS-16).

“Still, it is important to remember that the sector can suffer macroeconomic pressures (income and inflation). Despite the admission of students, the level of dropout in the first semester is still a factor to be observed. But we appreciate that Cogna is better prepared for the headwinds that may lie ahead”, say analysts at Credit Suisse.
The recommendation, however, follows underperform (performance below the market average) with a target price of R$ 2.30.

Bradesco BBI highlighted that the company had good results, as expected. Cogna reported 3% higher net income year-on-year, excluding Saber and Vasta schools, coming strictly in line with the house’s estimates. Kroton presented a 5% drop in revenue, which, in the house’s estimate, is due to the 14% decline in on-campus, partially offset by the 11% growth in distance learning (EAD).

Analysts point out that the student base grew 12% in one year, driven by a strong 22% growth in
new student income. Vasta, on the other hand, posted solid growth of 36% (or 20% excluding Eleva), in line with the R$1 billion guidance provided by Cogna to the market. Other businesses were practically stable (-1.5% in the year), mainly due to a drop in the PNLD textbook program. However, the recommendation follows underperform (below average performance) for the assets, with a target price of R$ 2.40.

Morgan Stanley followed the same line, maintaining an underweight recommendation (below-average exposure) with a target price of BRL 2.30 for the asset, despite seeing consecutive improvements in results.

“Excluding school sales, comparable revenue increased by 6%, the first growth in years, and gross margin increased what had not happened in many quarters, driven by Vasta, but partially offset by Kroton”, they point out.

In a conference call to present the results, the company’s executives brought positive signals, pointing out that they expect revenue and margins to rise with students in digital education in 2023. CEO of the company, Roberto Valério, said that the acquisition cost has been falling due to more strong.

He stated that the company is favoring digital students, which impacts revenue due to the lower amount paid for digital education. But for 2023, the expectation is to increase margins and revenue due to the addition of a volume of digital students, which occurs without much additional expenses.

The company, therefore, highlighted that the margin should continue on a high trajectory in the coming quarters. The company’s CFO, Frederico da Cunha Villa, stated that the margin has been increasing due to the change in the mix, with more complementary products that have higher margins. He expects the recurring margin gain in the first quarter to continue in the coming quarters, reaching a higher level than in 2020.

The executives also highlighted that the average in-person admission tickets had a slight drop in the first quarter of 2022, of less than 2%. According to the board, the volume in person is growing faster in products with lower value, which explains the drop in the ticket. In digital, the board said they did not see ticket loss, emphasizing that there is greater penetration of blended attendance.

Asked about the transfer of prices in medical courses in the education sector, the CEO of Cogna, Roberto Valério, said that he has not seen difficulties in the company, perhaps because of the distribution of squares. For veterans, the company managed to pass on inflation in the re-enrollment, and there are also passes on for new students, he said.

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