JP Morgan updated its outlook for the education sector and decided to upgrade Cogna from ‘neutral’ to ‘buy’.
With the decision, analysts Marcelo Santos and Jessica Mehler have a buy recommendation for the entire sector – with the exception of a ‘neutral’ for Afya, which the bank sees trading at a fair value.
“The worst seems to be over for the sector. All covered companies must record cash generation in 2024 (yield between 6% and 12%) and companies are expected to grow at mid- to high-single digit rates in the coming years, while profits also increase,” they wrote.
According to the bank, the shares under coverage are trading at a P/E of 6.7x for 2024 and 4.65x for 2025 – very discounted values in JP Morgan’s view.
In the case of Cogna, JP Morgan estimates a 3.5x greater cash generation in 2024, of R$240 million.
This should continue to positively impact the company’s deleveraging – which fell from 3.2x in 2022 to 2.5x last year. JP Morgan believes that the net debt/EBITDA ratio could fall by 1.9x in 2024.
Furthermore, in the analysts’ view, Cogna’s funding in the first half of 2024 should be better than that of its peers.
“Cogna expects low-digit growth in face-to-face and distance learning, although stronger in distance learning, while Yduqs should grow 15% to 25% in face-to-face, but should have a weaker digital with a drop between 4% and a rise 1%,” the analysts wrote.
Ser should have stability in funding, and Vitru, low-digit growth, according to analysts.
JP Morgan did not define a target price for Cogna, but did a sensitivity analysis and suggested a fair value between R$2.80 and R$4.40 per share – in scenarios that exclude or take into account the 68% of Vast that Cogna holds.
Cogna shares opened the day up 7%, at R$2.14. The company is worth R$4 billion on B3.
Despite the ‘buy‘ in Cogna, JP Morgan still places Anima as its top pick sector and increased the target price from R$7.50 to R$8, a upside of 139%, especially due to a higher EBITDA estimate for the coming years.
