This article presents a very simple and easy-to-understand thesis.
For-profit education has been under fire forever. The main problem is that most of its students pay their dues through public-guaranteed student loans. And then, students default on these loans "en masse." This basic reality has led to ever-stricter regulatory action, which in turn, has restricted the flow of students to a point where for-profit companies are seeing declining enrollment.
This ongoing story has led to investors shunning the whole sector. The prospects for renewed growth are zero to nil, and this has depressed valuations to no end. However, even with the massively lower valuations and declining enrollment, something odd happened. Some players still managed to produce cash flow or even report earnings.
Such was the case with Apollo Education (NASDAQ:APOL), a for-profit outcast that got so punished it traded at a market capitalization of just $754 million. $754 million was indeed somewhat short of rational when you consider the company held net cash of $921.7 million. Furthermore, for all its troubles, APOL was a company still producing positive earnings (if we strip out restructuring charges) and EBITDA.
It was thus not much of a surprise when the company recently got a "go private" offer at $9.50 per share, which valued it at around $1.1 billion. Hardly above net cash for a still-profitable business.
Is There Another Such Company Trading Similarly?
- BPI has $339.1 million in net cash (already striping out its "rent liability" going forward).
- The company, for all its troubles, is still profitable. If we strip out $59.3 million in restructuring charges in the last 9 months or $44.9 million in the most recent quarter, BPI would have reported operating profit of $23.1 million (last 9 months) and $10.4 million (last 3 months). Obviously, it also has positive EBITDA.
- Finally, BPI trades at a market cap of $293.1 million, which, like APOL, is below its net cash even considering capitalized rent.
It would thus not be incredibly surprising if BPI shared APOL's fate by also getting a "go private" bid.
BPI is in a situation that's very similar to what APOL found itself in before it got a "go private" offer at a premium.
It wouldn't be impossible for the same to happen to BPI - for it to get taken out at a premium. This would make the new owners inherit a business that's still profitable for free. A challenged business, for sure. But you can't beat "profitable and free."
Disclosure: I am/we are long BPI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.