Strayer Education Inc (NASDAQ:STRA)

Web Site
Google Finance
SEC Filing

Aug 16, 2013
2013 Q2 Data
Check list:
1.Major Business.
For profit education. Currently around 46,000 students. 100 campus in 24 states in US.
50% is for bachelor degree. 36% is for master degree. 13% is for associates degree.
Associate degree: 20 courses. average 2.5 years to complete. Currently $13,600/year.
Bachelor degree: 40 courses. However most students transferred 20 credits from community college. So the same as associate degree. Price the same as well.
Master degree: 12 courses. 1.5 years to complete. Currently $18,600/year.

2.Balance sheet.
Recent Price: $41.60, Tangible book value:$3.23, Share outstanding: 10.5m, Market Cap: $450m.
Current asset:$90m, Current liability: $43m, Debt: $123m,  Cash: $68m.

3.Credit facility.
$125m Term loan: $123m outstanding, 3%, matures at Dec. 31, 2016.
$100m revolving: $0 outstanding.

4.Financial data by years.

	2014	2013	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Revenue	446	503	562	627	637	512	396	318	264	221	183	147
OP Income	81.7	32.7	114	179	216	172	127	97.5	79.5	75	65.5	53
DA	20.6	35.5	24	22	17	14	11	8.5	7.0	6.5	5.5	4.5
EBITDA	106	68.3	138	201	233	186	138	106	86.5	81.5	71	57.5
CapX*	6.9	8.7	16	19	19	12	10	8	6	8	7	3
EBIT	99.1	59.6	122	182	214	174	128	98	80.5	73.5	64	54.5
EBIT%	22%	12%	22%	29%	34%	34%	32%	31%	30%	33%	35%	37%
Real Income**	59.4	35.8	73	109	128	104.5	77	59	48	44	38.5	33
Report Income	46.4	16.4	66	106	131	105	81	65	52	48	41	34
Cash	162.2	94.8	48	57	76			171	130	120	123	108
Debt	119	122	122	90	0	0	0	0	0	0	0	0

* Maintenance Capx
** Real Income= EBIT*0.6 (using 40% as tax rate)        
Real income previous to 2010 is less than reported income mainly because interest and other income. After 2010 real income is higher because for depreciation charge is bigger than maintenance capx and interest expense.

5.Insider holding, options, Insider trading info, share buy back.
Robert S. Silberman: (Chairman): 220k  2%, including 200k grants which will vest at 2019.
Karl McDonnell (CEO): 57km, including 46k grants which seems he returned to the company after vested at Feb. 2013. The reason might be it is impossible for him to meet the performance criteria.

6.Management compensation.
top five for 2010 to 2012:  $5.6m, $2.7m, $9.6m.

7.Employee numbers. Revenue/Employee. Compensation/Employee.
around 2000 employees. 20 per campus.

8.Industry comparison.
Kaplan, (belongs to Washington Post Company)
DeVry Inc
Bridgepoint
University of Phoenix, (Apollo Group)
ITT Educational Services, Inc
Corinthian 
Career Education Corp.
Education Management Corp
Capella Education Company

Investigation Report:
http://www.harkin.senate.gov/help/forprofitcolleges.cfm

9.Auditor
PricewaterhouseCoopers LLP

10.Major events.
(1) At 2009, it paid $40m(183k shares) worth of stock awards to CEO Robert. This was widely criticized. However, it is for a 10 year period and currently it is only worth $8m.
(2) Dec. 2011, Acquired a EMBA JackWelch Institute. Currently have around 500 students.
(3) May 2013, CEO Robert transfer his position to Karl. However, he is still actively evolved. Kind of like a co-CEO.
(4) May 2013, The company rolled out a Graduation Fund program which will give one free course at the last year for every 3 course completed in previous years. It is like a 25% deduction in tuition. Mainly to reduce the drop out rate.

(5) The company had been aggressively buying back shares in the past several years. Currently there is still $70m available for buy back this year. This could reduce more than $1m shares.

11.Comments.
(1) In 15 of the public for profit education company. Strayer is in 10th place by students number. The whole industry is in trouble lately. Many of them are not doing business in a respectful way and need some major reform. However, in my opinion, Strayer is the best of them in quality wise. From many aspect, it is close to a not for profit. There are extensive writing and material that can be found about Strayer.  Unless the whole sector will be wiped out, this company will likely survive .

(2) I can't agree more with the company leader's idea of running this business: Great university makes great company. Its focuses on academic success will eventually leads to its financial success. When a company put profit at second place, there will be rewards in the future. BTW, it is really enjoyable to read the annual letters written by Robert Silberman for past 12 years.

(3) Because the company is less focused on enrollment numbers, the revenue and enrollment numbers in kind of free fall in recently 2 years. And the Graduation Fund makes it even looks worse in the future. However, those are the right things to do in my opinion.

(4) The graduation fund will have a major affect both of its revenue and income starting Q3 2013. Given its graduates is less than 20% of total enrollment and only 2/3 of them are undergraduates.  By maximum it would drag down revenue and profit by 20%*(2/3) = 13%. Given it also retires its $1000/term scholarship which will offset some the the decrease. I estimate that profit margin would decrease by 10% by maximum. If it indeed increase future enrollment, that is another story.

(5) Past financial data is not very useful for valuation in this case. We will end up with a high value if using it. I am pretty sure the profit margin no way will go back to previous level once the industry reformed.

(6) As mentioned in its report, a 2% drop in revenue would cause 1% drop in profit. This has been well observed in the past. I assume the revenue in 2014 will fall 10% from 2013 level, which would come close to $450m.
   (a) If EBIT margin decline to 15%, then it would be $450*15%*60%=$40.5m in real income. Which will give a $60 in fair price.
   (b) If EBIT margin decline to 10%, then it would be $27 in real income and a $40 in fair price. However, both revenue and margin would go even worse. Also since current depreciation will be $10m more than capx and another $5m in interest expense.  Reported income might be $15*0.6=$9m less than real income.
   (c) In a long run, if revenue restart to grow again and EBIT margin back to 20%, the upward will be big.

(7) It is hard to assign a quality score to it. The model I am using obviously has problems. Temporarily I just give a 8 for it.

(8) Overall, I think the company well worth the current price level. However, in the next 1 to 2 years, its financial might get even worse which might drag the price even more down. Should use a good buying strategy.

Update: Oct. 30, 2014.
After one year the stock is back to $73. It seems not cheap anymore. Currently the company's annual EBIT% is still below 20% but is getting higher. Obviously the it is better than I estimated. Both 2014 and 2015 revenue would be around $450m.  On 2016 it might return to $500m again.

If using 20% EBIT% and $500m as normal revenue, real earning would be just $60m/year. Which is support $84 fair value if using P/E of 15. However, that would be in 2016. So the current price over $70 might be good to exit.


Update: Feb. 06, 2015
After Q4 2014 release today, it price fell from $70 to $63 now.
In my view, the business is well in track. The price is quite good but not as attractive as before. $84 fair price is quite reasonable. Wish it could be lower than $60.

Sept. 14, 2020

Current Price $89, Shares 24m, Cap $2.2B.

It has been over 3 years since I last hold STRA. There are some updates.

1. The company was doing quite well in 2016 and 2017. Both its revenue and net income had recovered very well. Rev back to 450m and net income back to around 55m/year.

2. In 2018, it merged with Capella University, another for-profit that is a little smaller than Stayer with close to 40,000 students. STRA issued close to 10m shares which brought total shares to 22m. 

3. In 2019, the integration of Capella went very well. Revenue grew to $1B including Capella. The real cash it generated is around $150m. 

Since earlier this year, the stock has fallen from over $160 since earlier this year. There are some of the reasons:

1. The pandemic will decrease Strayer's enrollment significantly. As in Q2's conference, in Q3, Strayer's new enrollment will decrease by 27%, which will decrease revenue by 1%. 

2. It will acquire Laureate’s Australia and New Zealand operation for $640m. Laureate(LAUR) is another high leveraged for-profit public company that is seeking to divest its holdings. The units STRA is acquiring generates around $190m in revenue. The price that STRA paid seems quite generous. 

3. To fund the acquisition, STRA could use its $500m cash and with some debt. However, it went to offer 1.9m shares at $105/share. That increased the total shares to 24m. 

Comments:

1. The overpay of the Laureate acquisition and the low price offering are more than offset by the falling of its share price. Overall, I believe the acquisition will be beneficial to the company.  

2. The 27% decrease in the new enrollment of Strayer is indeed bad news. However, it only happens in Strayer which won't be that bad in Capella. Also, it is the new enrollment while not the overall enrollment. That is why it will only reduce the revenue by 1%. However, if the trend continues for 2 years, it could reduce overall revenue by 10% to 20%. 

3. Currently, the stock is trading around 13 times its 2019 earnings. It is quite a cheap price. Currently, it is hard to estimate how long and how bad its new enrollment will be affected. I assume by 2022, it might go back to normal with $1.3B in combined revenue and $200 in net income. That should support a 4B market valuation. 

Update: Mar. 22, 2022

Recent Price: $66. Shares 25m. Cap $1.64B

I was really wrong in the previous writing.

1. I have foreseen the possible outcoming of the reduction of Strayer's student enrollment but chose to ignore it. Revenue in 2021 was just $1.13B. Also, I failed to realize the operating leverage of the business which had reduced the net income to just $116m in 2021. 

2. On the positive side, Strayer started to see the new student enrollment increase again. However, it will take another 18 months to 2 years for the total enrollment to increase again.

3. The chairman Mr. Silberman bought some shares at a price of around $60 lately.

4. Offset by the growth of other parts of the business, I estimate 2022 just a flat year vs 2021 while by end of 2023 it might go back to a $150 to $170m annual income level. Might support a $3B valuation by then.

PINETREE CAPITAL LTD 8 PCT DEBS (PNP-DB.TO)

July 29, 2013

http://finance.yahoo.com/q?s=PNP-DB.TO

http://pinetreecapital.com/

http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00004131

http://seekingalpha.com/article/1554152-pinetree-capitals-debt-in-free-fall-now-cheap


Check list:
1.Major Business.
The company is quite similar to URB.A. A close-end fund which is running as a company. However, It mainly focus on junior resource sector. Most of it is holdings are from Toronto Venture Exchange. Most of them are very risky stocks which make this stock risky.

The company reports its major holdings whatever is over $1m in value every quarter. It reports its NAV in middle of each month for previous month end.

As in the seeking-alpha link above, this is about the $60.9m unsecured debt the company had. The most important part of the unsecured debt is that there is a covenant: the company's debt/asset ratio must be less than 33% at any reporting time. As July 15, 2013, the ratio is about 36%. The company has to fix this problem before Sept 13th or it will trigger a default.

2.Unsecured Debt .
Original amount: $75m. Current balance $60.9m.
Mature date: May 31th 2016.
Interest: 8% per year. Paid twice each year at May 31th and Nov. 30th.
Current price:  $71 for $100 par value.

3.Unsecured Debt Repurchase.
(1) Jan.01, 2013 -- Mar. 31, 2013: Purchased $0.8m at $78.5 per $100 par value. Balance $74.2m
(2) Apr.01, 2013 -- May 16, 2013: Purchased total $6.64m. Price around $80. Balance $67.56m.
(3) May 17, 2013- June 25, 2013: Purchased $6.696m. Price around $79. Balance $60.864m.
The next 10% repurchase is not doable before May 17, 2014.

4.NAV and estimates.

	Sept	Aug	July	June	May	Apr	Mar	Feb	Jan	Dec	Nov	Oct
NAV	0.85	0.91	0.79	0.76	0.95	1.00	1.20	1.28	1.47	1.55	1.56	1.71
Sept 12										162	162	168
Dec 12							132	139	161	173	164	180
Mar 13			92.5	88	105	111	130	132	152
June 13	74.0	83.7	74.3	68.3

 I created some portfolios in Google finance based on its disclosed position each quarter. Each portfolio only works best for the following 3 months after the report time. It gives a rough direction the NAV goes. Based on Mar. 31, 2013 disclose, the portfolio ends at July 31 with 92.5. I estimate that that the NAV should be around $0.80 at July 31. (update: it turns out to be 0.79)

5.Insider holding, options, Insider trading info, share buy back.
The CEO holds around $1.75m in the unsecured debt. and 6.1m shares(4.3%)

6.Management compensation.
A reasonable management compensation. Compare dividend with compensation.

7.Employee numbers. Revenue/Employee. Compensation/Employee.
n/a

8.Industry comparison.
n/a

9.Auditor
Ernst & Young

10.Major events.
Business acquisition, law suit etc.

11.Comments.
(1) If the debt ends with full payout with interest at 2016. Based on current price, it equals 20%/year return.

(2) At Sept 13, 2013, there would several possibility with the debt.
A) Asset value appreciated so the covenant is fixed. To do that, the NAV should be over $0.87
B) Obtain a temporary wavier from debt owner and start a tender offer for part of the debt.
C) Only obtain a temporary wavier and wait the asset value to arise.
D) Let the debt default.

I think A) and B) is most likely to happen. While C) is less likely and D) is very unlikely.

(3) Currently  for a par $15,000 order, BMO charges $50, iTrade will charge $25 and Questrade might only charge $11 for it. Don't know why such a difference.

(4) As some comments in the seekingalpha post point out, the debt has two contradict clauses 2.4(g) and 4.10 which are about the repayment of debt by issuing common share. In 2.4(g), it says the company can repay up to 1/3 of the debt by issuing new common shares, while in 4.10, it says the company can repay all debt using new shares. I have read it and got confused as well. Unless this matter is clear, the debt can't be touched.

Updated: Aug 15, 2013
(1) July 31st NAV is $0.79, close to my estimation. However, the June 30 portfolio haven't been released.

Updated: Aug 19, 2013
Recent price: $76 for $100 par value.
Today the company announced plan to seek for amendment from the 33% to 50%. In exchange,
(1) Every notes holder who vote for the amendment will receive $60 per $1000 par value as fee, or 180 common share which is effectively $0.30/share.
(2) The interest goes up from 8% to 10% effective Nov 30.
(3) Also the company promises to tender offer another $20m and rise another $5m in equity.

Currently around 44% notes holder already agreed. Need 2/3 of total votes to be effective. Pretty interesting situation.

Updated: Jan 30, 2015
Recent price: $75 for $100 par value. Share price $0.07

(1) The company settle the debt in Sept. 2013 with rate increased to 10% and one time 6% payment for who vote for it. The debt/asset ratio temporarily lifted to 50% for 9 month until June 12, 2014.

(2) At Nov. 2014, the debt/asset ratio is above 33% again. NAV at Sept. Oct. Nov are 0.63, 0.47, 0.46. Debt/Asset ratio at Oct. 31 is 38.8%. Current balance of debt is $54.8m

(3) At Dec. 12. It announce that it had cured of the covenant. However, it seems soon in default again.

(4) At Jan 26, 2015, proposed settlement with debt holder will be: a) CEO and other 2 directors resign. 3 new board members nominated by debt holder will be elected. b)Grant some equity to debt holder  c)By July 31. Reduce debt by 20m. d) Rise debt/asset ratio to 50% until Sept. 30. 2015 e) Remove restriction on debt redemption. The deal deadline set at Jan. 30, 2015, later extended to Feb. 06.

Comment:
(1) Based on my estimation, it currently still has over $70m in liquid assets. It is down around $40m compare to Sept. 30th Which converted to $20c/share. However, the portfolio I created on Google finance based on Sept. 30, 2014 position seems not consistent with the company's data. I estimate its current NAV is around 30c to 40c. It probably still have $100m to $120m in asset which  is still above 2x of the debt.

(2) It seems scary but I view the debt is still quite safe as it secured by the asset. In one year and four month it will receive $115 compare to invest $75. Around 50% return if it goes fine. Plus it might get a little additional stuff in the settlement.

(3) As for the stock, current price is pretty cheap as well. Major risk is that the new management continue its old reckless investment practice. Minor risk is the market continue down on resource stock. In my view it is really beat down and less likely to down another 50%.

(4) Another risk for stock is that when debt holder is on board, it won't care about share holders value and more likely to liquidate asset and keep it safe. That might be bad for the stock holder.


Update Feb. 17
Current debt price still around $75. Share price: $0.085.

(1) The forbearance agreement has been reached. No much different than the proposal except there is no equity issued for debt holder. It created a new  investment oversight committee which is controlled by the debt board member.

(2) One large holding ($9m) of it is a tech stock called Sphere 3D Corp seems performed very well recently.

(3) The companies record $46.8m liability for the $54.8m debt at par ($85/$100). This is a short of $8m which could also decrease NAV at 4c.

(4) At Q3 2014, it has around $110m in liquid asset, $45m in illiquid asset. $13m in tax asset and $48.5 in debt liability. Currently it is liquid asset is around $73m. Assume $30m in illiquid asset, it may has a NAV of ($73+$30+$13-$46.8)/200 = $69.2/200= $0.345. If removes the tax asset and use par value for debt liability, the real NAV is ($73+$30-$54.8)/200=$0.245.

(5) Assume by July 31, it liquids stock to buy back the $20m debt at $85/$100. All other stay the same. Then it will has  $73-$17=$56m in liquid asset, $30m in illiquid asset, $34.8m debt at par.

(6) At Q3, 2014, it has $15m in non-capital loss(expires at 2033) and $206m capital loss (do not expire). Valued at $53m(24% of principle) but recorded less than $13m.  This might be quite valuable if it been acquired by others.

(7) Over all, the debt is still very safe in my view. While the stock is not that attractive. By July 31, it might only has ($56m-$34.8m)=$21m in liquid NAV which is just $0.10/share.

Update Feb. 20, 2015
Have read the forbearance agreement.

(1) The company can redeem any amount of principle by paying 1/3 in new stock (95% of average market price 20 days preceding the 5th day before redemption date). At mature date, it can pay down debt the same way.

(2) Assume by July 31, it buys back $5.7m debt at $85/$100, and redeems the rest $14.3m by paying
$9.5m in cash and rest in stock. Then it would pay $5.7*.0,85+9.5=$14.3m. Issue 60m new shares at $0.08. By that time it would have $73-$14.3= $58.7m in liquid asset, $30m in liliquid asset, $34.8m debt at par, 260m shares outstanding.

(3) Assume at mature date, it repay debt by 2/3 in cash and 1/3 in stock. It would have to issue another $34.8/3/0.08=145m shares if the market price stay the same as today. Make the NAV even lower compare to current price.

(4) For debt holder, it is still pretty safe at this price even 1/3 of debt will be redeemed in stock. For equity holder, the potential dilution make it not attractive.

Update Mar. 27, 2015
Current price $84 for $100. Stock $0.15.

(1) The company released news yesterday that it will redeem $10m debt at Apr.30 at par + unpaid interest. Pretty a surprise that it doesn't want to pay 1/3 in stock and it doesn't use tender offer. It either because the stock price is way below NAV or the debt board member forced it. This is a very good news in my view. Effectively reduced effective price close to $80 which could still yield a 32% return if hold to May. 31 2016.

Assume we put $8500 today, we will receive around $1800 at Apr. 30th, $410 interest at Nov. 30, 2015, At May. 31, 2016, would receive$410(interest) + $5460(2/3 in cash)+ $2740(1/3 in stock) or maybe all in cash which is $8200+$410.

(2) If by July 30, 2015 the company use the same way to redeem another $10m at par. Then the return on fund deployed could be boast by another 8% which could make it a return at 40% to mature.

(3) Currently its liquid assets is around $79m which make the debt pretty safe still. The debt price is still very good.

Update Mar. 30, 2015
Current price $85 for $100, Stock is $0.14.

(1) The company released 2014 year end NAV at $0.25/share. A lot less than $0.63 at Q3 2014. However, it removed $13m capital loss tax asset and record debt liability at par value which reduced the NAV by $0.10. The actual NAV is very close to my Feb. 13 estimation of $0.245/share. At Dec. 31, it has $85(liquid)+$20m(illiquid) in assets which is a little higher than my estimation.

(2) At May, 21 2014,  the company starts a new 10% debt repurchase expires May, 20, 2015, at that time the debt outstanding is $60.864m. At Dec. 31, the debt outstanding is $54.8m. So the repurchase is likely done. From May 1st to July 31th, it has to reduce the debt by another $10m. Based on the trading volume, it is little that the company can buy back from May 21th to July 31th. So it can only be done by redeem at par or tender offer. Based on the 2014 MD&A document, it is very likely to be another redeem at par.

(3) Currently the NAV is probably the same as Dec. 31, 2014. If the company do another redeem at par before July 31th, the company will have around $65m(liquid)+$20(illiquid) in asset with $35m in debt after that. It still needs to buy back $10m debt to bring the debt/asset ratio back to 1/3. Most likely it will have another 10% buy back.

(4) At Mar. 30, the company has $14m in cash which will be used for the debt redeem. Based on current redemption plan, I estimate it need to pay interest around $6m from Jan. 01, 2014 until debt mature date.


Update July. 14, 2015
Current price $95 for $100, Stock is $0.08.

(1) Since April, the company had made 3x $10m redeem at par. Now the debt outstanding is at most $24.8m.  It is likely now it fulfill the 3 times asset/debt ratio. NAV value of the stock is around $0.18 at May 31th.

(2) The company disclosed public holding at Mar. 31 only contains 7 stocks with a market value around $30m which is much lower than in the Q1 report($55m).  Currently market value of these holdings is around $25m.

(3) My investment at $77 per $100 par have returned around $53 in redeem plus some interest.  The leftovers are cost about $24 with a par value around $47.

Update July. 30, 2015
Current price $96.5 for $100, Stock is $0.135.
(1) The company released Q2 2015 data. Around $31m in stocks. Total investment $60m. Cash $15m. Debt $35m. That make a NAV around $0.20/share

(2) The third $10m redeem is done July. It will make another $10 redeem at Aug. After that, the debt will be only $15m. Asset should be around $55. That will fulfill the 33% debt/asset ratio requirement if nothing changed. Around the $55m asset, should only have $25m in cash+stock, $5m in loan.  Rest $25m is in warrants+private investment. After paying remaining $15m debt. The equity holder could have $10m in cash+public public stock, $5m in loan, $25m in warrants+private. That is $5c + $2.5c + $12.5c respectively. In my opinion the current stock market price $13.5c is not worth it. However, there might be some hidden value in its operation lose tax asset which is not counted.

(3) The fourth redemption in Aug. is $10m of $25m in pro rata. Which should around 40%.  There is still 10 months until May 31th. 2016 which should have 8% interest left. At current price of $96.5 per $100, it would generate another 6% after redemption, totally will generate 14% in 10 months. Not too bad.

Update Oct. 16, 2015
Current price $100 for $100, Stock is $0.07.
(1) The company released at Sept. 30th the NAV is around $0.13/share.

(2) The fifth redeem of $5m will be done at Oct. 30, after that, there will be only $10m left. With the current price at par, there is only the interest left, which is around 6% return for 7 months then the debt is mature.

I sold all my debt holding. After the fifth redeem. The company will have around $36m in asset and $10m in debt. It seems safe but it seems all the liquid asset is almost gone($30m is in loan and private). It is not really worth to take the risk to hold to mature. For the stock holder, unless someone can utilize its capital loss tax credit, it is probably not even worth the $0.07.

Update Nov. 13, 2015
Current stock price $0.065.
(1) Oct. 31 NAV is $0.13/share.
(2) Q3 date released. At Sept. 30, there is $14m in liquid equity. $20m in private equity. $5m in private bond. After Oct. 30 redemption, should only have $9m in liquid equity and $10m in debt. All the NAV now is private equity and bond ($20m+$5m).

Update Dec. 03, 2015
Stock price: $0.05
(1)After several redemption, the company satisfied the debt covenant, so the four directors from the debt holder resigned.
(2)Again the company redeem $3m of the $10m debt. However, this time it chose to redeem $1m by issuing new stock. I guess it is related to the directors resign. Lucky all previous redeem not using this options.