Nord Anglia Education Investors Uneasy As Management's Execution Likely To Take Years

Barclays maintained its Overweight rating on Nord Anglia Education Inc NORD saying that investors need patience with the company to see returns.

Though investing in the Chinese dual curriculum schools might be the right long-term decision, the brokerage said sizeable investment amounting to about $20 million per and associated drag on earnings has increased the perceived risk for investors.

“The story now requires patience (2-3 years), an understanding of China and confidence in management's ability to execute. In the NT though, we expect the 'perfect storm' of costs to be slowly offset by growing revenues and an eager return to M&A,” analyst Manav Patnaik wrote in a note.

Patnaik added that the current utilization of about 68 percent should improve steadily, taking the pressure off costs.

“[E]ven though FY17E revenue guide missed ($935M at mid-point vs. $945M street), 9-11% organic growth (8% enrollments + 4% pricing) is attractive,” the analyst continued.

At this growth rate, Patnaik believes NORD can surely avoid future adj. EBITDA misses (FY17E's $208 million at midpoint incl. '1x' costs vs. Street's $215 million).

Patnaik has a price target of $22, while the stock is down 0.32 percent to $21.53.