MBAIF - CIBT Education Group Inc.

[ValueVancouver]

This is a deep value stock trading at nearly half its book value ready for steady and intense growth. CIBT Education that trades as MBAIF in the US is a Canadian student housing REIT and education company that owns multiple universities in Canada, as well as a few other education related assets. On a recent trip to Canada, it was hard to not notice the burgeoning foreign student population (particularly of Chinese origen) and a generally vibrant and welcoming immigration climate unlike the climate currently in the US. When researching further into the education market, it became clear that CIBT education is perfectly positioned for growth backed up by actual earnings.

 

Fundamentals

The Book Value or Net Asset Value per share, or the fair value that the company should receive if it was to be liquidated today, is hovering at .71 - .79 cents per share, compared to the stock which is currently trading at .47 cents per share indicating that this stock is a great bargain!

The trailing PE value is just under 5 compared to the PE value of comparable student housing stocks like ACC (PE of 64) or EDR (PE of 139). ACC and EDR are US student housing companies, and the only comparable companies that we can use to compare to MBAIF, because there are no comparative publicly traded student housing stocks in Canada. This is important to note because this shows MBAIF won't be facing much competition as it scales. There are private student housing companies in Canada but not publicly trades ones, only MBAIF.

CIBT Education debt is high, but that's typical of a REIT, and their debt is in line with ACC, its comparable competitor in the US. Compared to other industries, their debt would be high, but for the student housing sector, it's in line with its very profitable US counterpart, ACC and also in line to other REITs. REITs are just fundamentally debt heavy.

 

History and Company Growth

There is tons of room for growth with this company over the next 5 years because they plan to add $1 billion in assets by 2020 with 9 new housing properties whereas they currently have only about $150M in assets. They plan to take 10-30% equity in each of their projects and also have 20 year management rights on each one solidifying a constant stream of income. If they grow to 5k beds at current rental rates of about $12k per year for a studio, that's $60M a year under management, and that's just their student housing sector under management, not including their other income streams from their education assets and also appreciation of their real estate assets in the in demand Vancouver real estate market. To compare, their last quarterly reported revenue was about $30M, so tons of room for growth.

As a developer of student housing, they have a competitive advantage over their competitors (again none are public like MBAIF) because they have a unique system in place to funnel students from their universities and schools into their housing.

The vacancy rate in Vancouver is extremely low, at .5%, and rental rates are skyrocketing.

 

Macro

The US is no longer seen as a friendly place for immigration with the Trump administration's agenda on immigration. Just over the border in Canada, Justin Trudeau's administration is very welcoming to immigrants, making it a point of his administration to bring in more international students (state visits to China and the opening of 7 new visa offices in China), his administration reducing barriers to entry, and an agenda to make an easier pathway to citizenship. Canada has set a goal of an 88% increase in foreign students from 240k in 2012 to 450k in 2022. As Canada is opening its arms, the US is going in the complete opposite direction. This is a good article about the US change in immigration policies and how Canada is treating immigration: https://www.google.com/amp/www.macleans.ca/news/canada/the-american-dream-moved-to-canada/amp/

Vancouver is very accessible to Chinese as there are direct flights to Vancouver from China, and their is a huge Chinese population already in Vancouver.

Canada's defense minister is a Sikh with very deep Indian roots and an expanding great relationship with India, which is set to overtake China in population in a few years. As India grows and becomes wealthier, more of its students will seek higher education in places like Canada.

 

This is my analysis of the stock and for full disclosure I have invested in MBAIF, but you can also view a professional analyst's breakdown from Fundamental Research Group here: http://www.cibt.net/investors/analyst_coverage/research201702.pdf

 

Let me know what you think about this stock pick? Thanks!

[ValueVancouver]

CIBT is up 8% today due to a successful acquisition adding nearly $25M of revenue to their portfolio on a $12M purchase. This catalyst is small potatoes compared to the value this company is adding due to the development of their student housing portfolio.

 

This company trades as MBAIF in the US and will mirror its Canadian security MBA.TO 8% pop very soon. Time to buy, MBAIF if you are in US or MBA.TO if you are in Canada.

 

https://finance.yahoo.com/news/cibt-subsidiary-acquires-assets-kgic-110000036.html

[no_free_lunch]

Thanks for the thesis and the heads up today.  Couldn't get a fill and I think the gap has already closed but it looks like there was an opportunity.

 

I like the thesis on this one regarding canadian immigration.  Just not sure about the stock yet.  Right off the bat I can't help noticing it has been around for 20 years (at least that's the history I have available) but it just looks like it bounced around the whole time, often at higher levels.  How do you feel about management given the history?

[ValueVancouver]

@no_free_lunch  thanks for the feedback. I think management and its board members are extremely experienced with proven experts from education management to real estate management. Toby Chu,  chairman and CEO, has run the company since inception and continues to show passion, in fact becoming more and more passionate about it as they expand into student housing (just closed a huge deal at bargain to bring on 10 more schools) - it's his baby so to say. He also brings tons of experience, connections and is a very smart man. The connections I speak of are those in Hong Kong and China - being of Chinese descent he has opened subsidiaries in China that feed his schools in Vancouver and rest of Canada. As I mentioned in the earlier analysis, Chinese students are rushing into Vancouver and CIBT is best positioned to capitalize on this foreign student migration.

 

Management decided 3-4 years ago to pivot into student housing, a savvy move, bc I think they realized "we have this constant stream of foreign students coming into our schools, and they are renting out dilapidating housing with skyrocketing rental rates, so what if we expanding into student housing and funneled our students into our own state-of-the-art, brand new student housing?". They did. And this more than doubled their revenue and instrinsic value so far, but the market has really yet to catch on and that is why this it is such a deep value diamond in the rough set to take off and also, a good stable hedge against all the speculation, fast rising prices going on with most US stocks right now.

[valueventures]

Interesting idea. The thesis on Canadian immigration and management makes sense, and the valuation is compelling. My primary concerns lie in the state of the balance sheet; MBAIF has a current ratio of less than 1 and significant debt. Its ROE and ROIC have consistently been low as well, despite consistently high gross margins. Has management shed any light on this?

[ValueVancouver]

@valueventures sorry just seeing your reply now. Valuation is definitely great and the future for Canadian education is extremely bright, and this company monopolizes the market.

 

Regarding the debt, you are correct CIBT Education debt is high, but that's typical of a REIT, and their debt ratio is in line with ACC, its comparable competitor in the US. Compared to other industries, their debt would be high, but for the student housing sector, it's in line with its very profitable US counterpart, ACC and also in line to other REITs. REITs are just fundamentally debt heavy. Regarding ROE and ROIC, I think the past 3-4 years, since they started up student housing, they invested heavily into development, construction, acquisitions, which is why you see the growing debt load but you will start seeing cash flow become positive within 6 months bc their rental income covers their debt load by more than double, vacancy rates in Vancouver are .5% and rental rates are skyrocketing. That's my take and I'm sure management has shed some light on this in past calls, but I would need to go back and review them.

[ValueVancouver]

In addition, this stock while being a great net-net value play offers a second benefit, a great hedge against the speculative US stock market. As we saw today with the DOW dropping more than 200, the market can quickly turn for the worse if Trump's policies aren't getting implemented. And if the political wrangling in DC is any indication of how it will be over the next months, than Trumps big stimulus agenda of cutting taxes and infrastructure spending, are going to be pushed back for a while. Therefore MBAIF represents a great hedge bc the more chaotic and unwelcoming toward immigrants the US appears to be, then the more foreign students will be attracted to Canada for higher education.

 

In summary, use MBAIF as a hedge as well as a great deep value play.

[ValueVancouver]

This company is a bellwether for value investors with it's current stock price at $.54, MBAIF is trading at a bargain at only 66% of it's intrinsic value of $.82 per share.

 

Value investing generally accepts that investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NAV per share.  A study done by the State University of New York to price the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4% by purchasing stocks that were trading at no more than 67% of the NAV and holding them for one year  - CIBT is at 66% right now.

 

See attached analysis with tables or text report, without tables below.

 

 

 

 

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CIBT Education (MBAIF)

 

Trading at only 66% of its 2017 NAV, CIBT Education (MBAIF), and its nearly 1,000 beds and 15,000 enrolled students represented among its 4 student-housing & 32 education assets, represents a compelling investment on a risk/reward basis. Due primarily to the extraordinary expected growth in its student housing portfolio, representing low vacancy rates, low cap rates, high demand, and an 8.5% annual appreciation, MBAIF’s NAV should jump to nearly $1.87 per share in three years (by the end of 2020) compared to its current stock price of $.54 per share.

 

CURRECT STOCK PRICE (6/20/17) = $ .54

 

2017 NAV = $.82

2018 NAV = $96

2019 NAV = $1.08

2020 NAV = $1.87

 

CIBT has two core industries, student housing and its education assets, and a third industry, development. This analysis will first cover its most valuable and promising industry, student housing, and then conclude with a summary of the company as a whole.

 

 

Student Housing

 

MBAIF’s student housing subsidiary, Global Education City (GEC), is a prime target to be acquired by either U.S.-based American Campus Communities (NYSE: ACC) or Education Realty Trust (NYSE: EDR), pension funds, insurance funds or a private equity firm such as U.S.-based Harrison Street which just purchased Campus Crest Communities (NYSE: CCG) for $1.9B. North American continent expansion and geographic diversification is compelling and either of the two student housing REIT’s could take significant costs out of MBAIF’s business. “There’s an influx of types of capital not historically seen in this space, such as pension funds in development and acquisition,” said Ryan Burke, an analyst at Green Street Advisors, a real estate research firm. The first-mover into Canada will be rewarded with low vacancy rates, growing student enrollment higher than the U.S. and a favorable exchange rate.

 

In a conservative scenario, the 2020 value of CIBT’s student housing portfolio with its 7 completed properties, and 3,428 beds (“beds” is how leasing is done in the student housing industry as opposed to “units”), is expected to grow 79% to a total value of nearly C$770M. However, the company is targeting a portfolio of closer to 10,000 beds and a total value closer to C$4B by the end of 2020. An ambitious, yet likely goal considering that by the time they reach their 10,000-bed count, CIBT will still be serving only 6% of the international student market, not including demand from domestic students.

 

 

Low Vacancy Rates and a Student Housing Shortage

 

Universities typically provide an undersupplied student housing environment and rely on private developers to make up the housing shortfall. Bill Bayless, CEO of American Campus Communities (NYSE: ACC), notes that “Most universities only provide housing for 20 percent of their students, traditionally freshman. They force them out after that into off-campus housing, often dilapidated buildings owned by absentee landlords.”

 

At the University of British Columbia, the dormitory wait list exceeds 6,000 students, making finding a place to live at a reasonable rate even more difficult.

 

To make up the shortfall and a .5% vacancy rate in Metro Vancouver, CIBT Education through its student housing subsidiary Global Education City (GEC) holdings, intends to fill it by adding an additional 2,584 beds by the end of 2020 which would add another approximately C$590 million of value to their student housing property portfolio. However, C$590M is in a conservative scenario and based on CIBT’s stated goal of 10,000 beds by 2020, it could add closer to C$3.2 billion.

 

Generally, in investing, you want to own what is in short supply. And what is in short supply right now is exactly what MBAIF owns and is developing.

 

 

CIBT Offering Housing Quality Student Housing

 

Compared to some of the dilapidated, outdated on-campus housing from the mid-1900’s that are devoid of the modern conveniences that today’s students have come to expect, the new housing CIBT is offering and developing, such as at their newest building in Burnaby Heights, is more akin to a luxury condominium complex offering 24/7 security and fully-furnished apartments including, stainless steel appliances, stone countertops, hardwood flooring, in-suite laundry, dining room, living room, flat-screen TV’s, weekly housekeeping, WI-FI, Netflix and utilities.

 

Amenities include concierge lifestyle services that offer among other things, weekend activities, hot meals, shuttle busses to schools, guardian services for younger student, and tutoring services on-site.

 

The new GEC Mega and GEC Super Centers will offer even more, including a library, fitness center, food court, auditorium, student lounge and IT center, all conveniently located in the same building as the housing and schools.

 

 

High Demand

The number of international students is growing at a faster rate in Canada than in any other country, with the number of post-secondary enrollees increasing at a staggering rate, by 130% since the Edu-Canada pilot project was launched in 2007—from 180,000 in 2007 to 415,000 in 2016. Especially in Metro Vancouver where CIBT is most active, international student growth alone (not including domestic) has accelerated enormously over the past years, jumping 20% in 2014 and 30% in 2015. The waitlist at British Colombia’s most renown university, UBC, is up to 6,000+ students and The International Consultants for Education and Fairs (ICEF) estimates that international student spending in Metro Vancouver will jump from C$1.3B to C$2.6B per year by 2022. Furthermore, Canada was named the #1 best country for education for 2017 by U.S. News.

 

The Canadian government is taking a proactive approach to welcoming international students and immigrants, opposite just south of the border in traditionally the most popular country in the world for international study. Justin Trudeau's administration is promoting a welcoming atmosphere, making it a point of his administration to bring in more international students (state visits to China and the opening of 7 new visa offices in China), reducing barriers to entry, and an agenda to make an easier pathway to citizenship. Canada has set a goal of an 88% increase in foreign students from 240k in 2012 to 450k in 2022.

“Canada’s high quality of post-secondary education at an attractive price is one of the reasons why our international student base has been on the rise since 2007” according to a report by Vice News Money.

 

According to the OECD’s “Program for International Student Assessment,” Canada ranked 7th globally for education performance, above Australia, the U.S. and the U.K. Moreover, international student tuition fees in Canada are substantially lower than that of our southern neighbor - it costs an average of $22,000/year to study in Canada, as opposed to $33,000/year to study in America.

 

 

4.03% Conservative Cap Rate

 

This analysis of CIBT’s NAV utilizes a blended cap rate of 4.03%, the same cap rate used by CIBT in their 2016 consolidated financial statement dated August 31st 2016. It’s a conservative cap rate to account for unforeseen changes to marketing condition, economic changes, interest rate and investor sentiments. However, the cap rate for CIBT’s student housing properties is likely to be closer to 3% because of the hot market in Vancouver and the properties’ unusually high yield.

 

 

Student Housing Funnel with Combined Pre-Paid Tuition & Rent

 

CIBT’s properties maintain a higher yield than typical apartment complexes because CIBT funnels students from their education system (32 education assets with 15,000 students) into their student housing complexes.

 

While CIBT Education’s subsidiary, Sprott Shaw College (SSC), is busy filling their schools with students, GEC, offers these students a safe, clean and convenient place to stay. Specifically, GEC Mega Center and GEC Super Center, their flagship projects will feature an innovate new model. According to CEO Toby Chu, “Instead of commuting to school, students will be ‘elevating’ to school taking elevators.  Parents can feel safer when their kids are living upstairs from their schools.”

 

 

Combined Pre-Paid Tuition and Rent

 

CIBT plans to offer student residents a one-stop solution by adding accommodation services to their tuition. “This packaged arrangement is expected to increase our revenue substantially while providing our students with a one-stop solution which will eliminate the trouble students normally suffer in having to seek out accommodation in Metro Vancouver with a declining vacancy rate of approximately 0.5%,” says CEO Toby Chu. “By taking such steps, we are confident that we will maintain our position as the leading provider of quality student housing in Western Canada."

 

High yield drives lower cap rates and this constant, guaranteed funnel of residents from CIBT’s robust educational system keeps their vacancy rates near 0.

 

 

Summary: CIBT’s Student Housing Portfolio is Running on All Cylinders

 

CIBT owns student housing in one of the hottest real estate markets in North America, Metro Vancouver, which has the lowest vacancy rates, highest demand, lowest cap rates and highest appreciation. Operating in Metro Vancouver, with one of the lowest vacancy rates in North America of .5%, gives CIBT a competitive advantage over North America’s largest student housing REIT’s, Education Realty Trust (NYSE: EDR) with its 2016 average vacancy rate of 10.1% and American Campus Communities (NYSE: ACC) with its 2016 average vacancy rate of 5.4%.

 

The Canadian government is determined to see an 88% increase in foreign students by 2022, and especially in metro Vancouver, this growth is evident with foreign student enrollment jumping 20% in 2014 and 30% in 2015. All indications are that this growth will continue, and accelerate considering the unwelcoming atmosphere growing out of the U.S.A, traditionally the world’s most popular destination for international study.

 

This high demand has created low vacancy rates for metro Vancouver at .5%, and a housing shortage that CIBT education is in the best position to capitalize on with their unique student housing funnel. The 32 educational assets and 15,000 enrolled students under CIBT’s education arm, Sprott Shaw College (SSC), feed directly into CIBT’s student housing subsidiary, Global Education City (GEC), solidifying a consistent, reliable, inelastic stream of tenants and near 0 vacancy, resulting in an unusually high yield and a valuably low cap rate near 3%.

 

The combination of low vacancy rates, growing demand from international students to study in Vancouver, and an unusually low cap rate, make GEC a prime target for acquisition but its high annual appreciation rate makes it a viable long-term growth stock as well.

 

 

Education Assets

 

In addition to CIBT Education’s extremely valuable student housing portfolio, CIBT also owns a valuable portfolio of 32 education assets with 15,000 enrolled students under its following subsidiaries: Sprott Shaw College (SSC), Sprott Shaw Language College (SSLC), Vancouver International College (VIC), CIBT Schools of China (CIBT - China), and recruitment through the Global Education Alliance (GEA).

 

 

Growth

 

The value of CIBT’s educations assets is expected to grow 25% by 2020 to a total value of nearly $61M.

 

The value is derived from an average of three different valuations; 1) Multiplier Valuation 2) FRC’s Discount Cash Flow model and 3) FRC’s EV/REV model.

 

The multiplier used in the Multiplier Valuation is 1.85 based on the 2013 sale of KGIC to Loyalist Group. In September 2013, King George College (KGIC) was sold for C$13.5 million and at the time of the sale, KGIC was generating annual revenue of C$25 million. By dividing the C$25M of revenue by the C$13.5M sale’s price, C$25M/C$13.5M, we get a ratio of 1.85. By multiplying this ratio to the expected revenue, we can obtain a reasonable valuation.

 

The remaining two valuations, Fundamental Research Corp’s DCF and Fundamental Research Corp’s EV/REV, are from the analyst’s February 2, 2017 report.

 

 

Conclusions

 

Limited Downside due to its Valuation and an Inelastic Industry

 

MBAIF trades at just 66% of NAV, providing real downside protection for investors. And steady growth is almost guaranteed, because of high appreciation in its student housing portfolio (GEC).

 

If CIBT did nothing other than let its student housing portfolio appreciate and let its education assets grow at a steady 9% a year, cease any new development and acquisitions, then the company’s value would still grow substantially.

 

 

Inelastic Industry

 

Student housing and education are two of the most inelastic industries on earth because the desire for a good education is entrenched in Western society, and that desire has become just as important in China and India. In fact, the 132,000 Chinese students studying in Canada make up one-third of all foreign students in Canada - a three-fold increase from a decade ago. And the number of students from India grew ten times over the last decade, reaching 80,000 in 2016.

 

Even in a recession, parents may cut back on discretionary spending, but not on education. And with student enrollment typically extending 1-4 years, student housing is a guaranteed long-term, stable source of income.

 

 

Industry Growth is Steady and Strong

 

CIBT Education has two primary industries, student housing run by its subsidiary Global Education City (GEC), and its education assets run by its subsidiary Sprott Shaw College (SSC). As of 2017, the education assets exceed the value of the student housing assets by over 200%, but by 2020, or sooner, the value of the student housing assets will overtake the education assets and become CIBT’s most valuable industry.

 

CIBT has a third industry, development, which is an extremely lucrative component, bringing in millions of dollars of cash every time GEC meets its development milestones or completes a project. As the developer, GEC takes a fee from its limited partners and investors in each project, and the larger the project, the more lucrative the fees are. Which is why when GEC’s largest projects like the Super Center and Mega Center (approx. C$550M value) finish in 2020, or approach completion & meet milestones, extraordinary development fees will be earned. This important cash stream allows GEC to buy more interest in its student housing assets and/or acquire new student housing properties.

 

 

CIBT Should Increase its Equity Stake in its Student Housing Portfolio

 

The following table depicts two scenarios, the current one with an average 24% ownership, and scenario B, an idealized scenario with 40% ownership.

 

CIBT Education’s management team, especially its CEO Toby Chu, are doing an extraordinary job leading this company’s growth, and should be commended for recognizing opportunity by pivoting from mostly an owner/manager of education assets into a company of profitable student housing. In fact, CIBT Education continually ranks as one of the most profitable and fastest growing companies in Canada. But to continue adding value, management should consider raising its equity stake in its student housing portfolio.

 

CIBT’s equity stake in its student housing properties ranges from 20% to 38.5%, with an average of about 24%. If CIBT increased its average equity stake to 40%, the company could extract about $45M/$.63 per share for shareholders by 2020, and with that cash could retire a majority of the outstanding shares. This is the kind of analysis that gets more attractive as value keeps marching higher than the share price.

 

 

Risks

 

• Construction delay and government approvals. The timely meeting of its student housing development milestones are extremely important. Unlike other multifamily projects, a missed deadline for student housing developers could mean a missed opportunity to fully rent out a building for a semester. Or, maybe even for a year.

• Fluctuation of real estate prices

• Interest rate increases

• Rising construction cost

• Slow-down of international students entering into Canada

• Need for additional capital to expand operations

• Dependence on key personnel, the Company’s facility providers and educational service providers in China

• Risks involving the Chinese legal system, tax system, and foreign currency limitation

• Ability to compete effectively with competitors that have greater financial, marketing and other resources

• Ability to manage planned growth and integrate new business opportunities into existing operations

 

 

Summary

 

With a limited downside and a portfolio full of attractive housing assets, MBAIF is set to at least double and maybe triple their value by 2020 - maybe sooner by 2019, if they continue their goal of one development and/or one acquisition every quarter.

 

With the current stock price at $.54, MBAIF is trading at only 66% of its 2017 NAV of $.82. Value investing generally accepts that investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NAV per share. A study done by the State University of New York to price the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4% by purchasing stocks that were trading at no more than 67% of the NAV and holding them for one year - CIBT is at 66% right now.

 

 

DISCLAIMER:

 

The author of this posting and related persons or entities (“Author”) currently has a financial stake in this security.  Author may buy or sell or short additional shares, or adjust some or all of Author’s position, at any time.  Author has no obligation to inform anyone of any changes to Author’s view. Please consult your financial, legal, and/or tax advisors before making any investment decisions.  While the Author has tried to present facts it believes are accurate, the Author makes no representation as to the accuracy or completeness of any information contained in this note.  The reader agrees not to invest based on this note, and to perform his or her own due diligence and research before taking a position in any stocks mentioned above.  READER AGREES TO HOLD AUTHOR HARMLESS AND HEREBY WAIVES ANY CAUSES OF ACTION AGAINST AUTHOR RELATED TO THE NOTE ABOVE.  As with all investments, caveat emptor.

CIBT_Education_MBAIF.pdf

[ValueVancouver]

With the current stock price at only $.54, MBAIF is trading at 66% of its 2017 NAV of $.82. Value investing generally accepts that investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NAV per share. A study done by the State University of New York to price the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4% by purchasing stocks that were trading at no more than 67% of the NAV and holding them for one year - CIBT is at 66% right now.

 

It's not as small cap as you think as it has at least $202M in assets at the moment event tho it's stock price is $.54.

 

This company is a bellwether for value investors with a lot of upside, and low downside.

 

Here's my analysis.

https://www.dropbox.com/s/15rcfdyc0i8ugh7/CIBT%20Education%20%28MBAIF%29.pdf?dl=0

 

Here's a third party analysis.

http://www.cibt.net/wp-content/uploads/2017/06/cibt-june-2017.compressed.pdf

 

Any comments or thoughts that the forum might have on these analyses would be greatly appreciated.  Thanks!

[DTEJD1997]

With the current stock price at only $.54, MBAIF is trading at 66% of its 2017 NAV of $.82. Value investing generally accepts that investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NAV per share. A study done by the State University of New York to price the effectiveness of this strategy showed that from the period of 1970 to 1983 an investor could have earned an average return of 29.4% by purchasing stocks that were trading at no more than 67% of the NAV and holding them for one year - CIBT is at 66% right now.

 

It's not as small cap as you think as it has at least $202M in assets at the moment event tho it's stock price is $.54.

 

This company is a bellwether for value investors with a lot of upside, and low downside.

 

Here's my analysis.

https://www.dropbox.com/s/15rcfdyc0i8ugh7/CIBT%20Education%20%28MBAIF%29.pdf?dl=0

 

Here's a third party analysis.

http://www.cibt.net/wp-content/uploads/2017/06/cibt-june-2017.compressed.pdf

 

Any comments or thoughts that the forum might have on these analyses would be greatly appreciated.  Thanks!

Things in Canada might be VASTLY different than things are in the USA...but I would point out two areas of concern:

 

A). I would hardly call a cap rate of 4% on real estate "conservative".  Maybe that might be the "right" rate...but I think the risk/reward ratio is out of whack...What if the right cap rate is 5% or EVEN 6%?  then the margin of safety is gone...and price along with it.

 

B). Education at this point appears to be cheaper in Canada than it is in the USA.  I would be short education in the USA.  Canada?  Harder to say.  Was it $22k a year to study in Canada vs. $33k a year in the USA?  If the world economy has a meaningful slowdown, that $22k a year might prove to be very expensive to many foreign students...

 

It is an interesting idea to be sure...but I don't see the discount/margin of safety being as large as what you perceive it to be.

[clutch]

Same idea pitched by the same poster three times now...

[winjitsu]

Same idea pitched by the same poster three times now...

 

Starting to think he's affiliated with the company or has some type of financial interest in promoting the stock...

 

 

[ValueVancouver]

Hi DTEJD1997,

 

See below in bold.

 

Things in Canada might be VASTLY different than things are in the USA...but I would point out two areas of concern:

 

A). I would hardly call a cap rate of 4% on real estate "conservative".  Maybe that might be the "right" rate...but I think the risk/reward ratio is out of whack...What if the right cap rate is 5% or EVEN 6%?  then the margin of safety is gone...and price along with it. You are right, it is not "conservative" in most locales, but in Vancouver it is.  The cap current cap rate is actually closer to 3%, that's why I am using a conservative 4% in my calculations to give the analysis some cushioning.  Its a higher cap rate than typical apartment complexes, as student housing units are designed for higher density.  Because of the strong demand to study in Vancouver, the vacancy rate is near 0, at .7%.  With a higher yield from the building, CIBT get a lower cap rate in the range of 3.0% vs. typical apartments of 4.0%.  This is a 25% valuation gain, which is substantial.

 

B). Education at this point appears to be cheaper in Canada than it is in the USA.  I would be short education in the USA.  Canada?  Harder to say.  Was it $22k a year to study in Canada vs. $33k a year in the USA?  If the world economy has a meaningful slowdown, that $22k a year might prove to be very expensive to many foreign students... The thing is that student housing and education are two of the most inelastic industries on earth. Even in a recession, parents may cut back on discretionary spending, but not on education. Further, 1/3 of Vancouver's foreign student population is from China, and education is more valuable to Chinese than ever before with Chinese middle income rising so rapidly and the Chinese one-child policy - so in most cases, China's 1 billion parents have one chance to get it right, hence, the the value of a good western education, no matter how expensive.  The student demographic coming from China is expected to rise exponentially in Vancouver over the next 10 years.

 

 

It is an interesting idea to be sure...but I don't see the discount/margin of safety being as large as what you perceive it to be.

[ValueVancouver]

Same idea pitched by the same poster three times now...

 

Starting to think he's affiliated with the company or has some type of financial interest in promoting the stock...

 

Clutch and Winjitsu,

 

Thank you for your concern.  I didn't know that the forum has a prohibition on posting stock ideas that the poster is financially involved in.  If that is the case, please show me the applicable forum bylaw.  To be fully transparent, I even disclosed my involvement in my analysis that is linked to this post.  The truth is that every post on MBAIF, comes with a new update, or new analysis, to inform the forum members of its rising value, and isn't this what the forum is for, valuable stock ideas? A stock trading at 66% its NAV, is proven to earn the investor an average return of 29.4% from study done by the State University of New York. MBAIF is exactly the stock that value investors from this forum are looking for.

[Jurgis]

Is there a reason to create a new thread every single time you post on this? Why not add a post to the old thread you created? That would be much more in the spirit of "Investment Ideas" area.

 

Also, change the title of the thread to ticker + company name instead of presenting it as a thesis.

[JRH]

Clutch and Winjitsu,

 

Thank you for your concern.  I didn't know that the forum has a prohibition on posting stock ideas that the poster is financially involved in.  If that is the case, please show me the applicable forum bylaw.  To be fully transparent, I even disclosed my involvement in my analysis that is linked to this post.  The truth is that every post on MBAIF, comes with a new update, or new analysis, to inform the forum members of its rising value, and isn't this what the forum is for, valuable stock ideas? A stock trading at 66% its NAV, is proven to earn the investor an average return of 29.4% from study done by the State University of New York. MBAIF is exactly the stock that value investors from this forum are looking for.

 

Some basic things:

1) There should be one thread per company

2) The thread title should be "[ticker] - [company name]", e.g., "CBI - Chicago Bridge & Iron" - this admittedly isn't followed 100% of the time, but that's no excuse not to.

 

One thread per company promotes the idea of minimizing redundancy, such as "introducing" the company three times. I think there's nothing wrong with you providing updates in a single thread, even if nobody else is participating, so long as they really do contain new information.

[ValueVancouver]

Is there a reason to create a new thread every single time you post on this? Why not add a post to the old thread you created? That would be much more in the spirit of "Investment Ideas" area.

 

Also, change the title of the thread to ticker + company name instead of presenting it as a thesis.

 

You are right on both points, will do!

[ValueVancouver]

Clutch and Winjitsu,

 

Thank you for your concern.  I didn't know that the forum has a prohibition on posting stock ideas that the poster is financially involved in.  If that is the case, please show me the applicable forum bylaw.  To be fully transparent, I even disclosed my involvement in my analysis that is linked to this post.  The truth is that every post on MBAIF, comes with a new update, or new analysis, to inform the forum members of its rising value, and isn't this what the forum is for, valuable stock ideas? A stock trading at 66% its NAV, is proven to earn the investor an average return of 29.4% from study done by the State University of New York. MBAIF is exactly the stock that value investors from this forum are looking for.

 

Some basic things:

1) There should be one thread per company

2) The thread title should be "[ticker] - [company name]", e.g., "CBI - Chicago Bridge & Iron" - this admittedly isn't followed 100% of the time, but that's no excuse not to.

 

One thread per company promotes the idea of minimizing redundancy, such as "introducing" the company three times. I think there's nothing wrong with you providing updates in a single thread, even if nobody else is participating, so long as they really do contain new information.

 

Good points, and I just changed the thread, thank you!

[DTEJD1997]

Hi DTEJD1997,

 

See below in bold.

 

Things in Canada might be VASTLY different than things are in the USA...but I would point out two areas of concern:

 

A). I would hardly call a cap rate of 4% on real estate "conservative".  Maybe that might be the "right" rate...but I think the risk/reward ratio is out of whack...What if the right cap rate is 5% or EVEN 6%?  then the margin of safety is gone...and price along with it. You are right, it is not "conservative" in most locales, but in Vancouver it is.  The cap current cap rate is actually closer to 3%, that's why I am using a conservative 4% in my calculations to give the analysis some cushioning.  Its a higher cap rate than typical apartment complexes, as student housing units are designed for higher density.  Because of the strong demand to study in Vancouver, the vacancy rate is near 0, at .7%.  With a higher yield from the building, CIBT get a lower cap rate in the range of 3.0% vs. typical apartments of 4.0%.  This is a 25% valuation gain, which is substantial.

 

B). Education at this point appears to be cheaper in Canada than it is in the USA.  I would be short education in the USA.  Canada?  Harder to say.  Was it $22k a year to study in Canada vs. $33k a year in the USA?  If the world economy has a meaningful slowdown, that $22k a year might prove to be very expensive to many foreign students... The thing is that student housing and education are two of the most inelastic industries on earth. Even in a recession, parents may cut back on discretionary spending, but not on education. Further, 1/3 of Vancouver's foreign student population is from China, and education is more valuable to Chinese than ever before with Chinese middle income rising so rapidly and the Chinese one-child policy - so in most cases, China's 1 billion parents have one chance to get it right, hence, the the value of a good western education, no matter how expensive.  The student demographic coming from China is expected to rise exponentially in Vancouver over the next 10 years.

 

 

It is an interesting idea to be sure...but I don't see the discount/margin of safety being as large as what you perceive it to be.

 

OK, think about this....where is the upside with a cap rate at 3% or 4%, is it going to go DOWN to 2% or 3%?  Who is going to be the marginal buyer of this real estate/asset?  What is the risk/reward ratio?  I can remember (just barely) when mortgage rates were in double digits.  Not saying it will get to that level, but you never know.  It is very clear that in the USA, interest rates are going up.  I would expect Canada to follow.

 

If interest rates go up just another percent or so, the whole valuation goes out the window.

 

Also, does it not alarm you that things in Vancouver are "different" than in the country/economy as a whole?  Does this not scream "bubble" or top of the market?

 

[BG2008]

I'm wondering why NAV would go up so much to close to $2 per share by 2020?  Can you create a bridge or just walk us through that?  Is that all through build out of new student housing units?  Why can't someone else with more capital do what CIBT does?  Do they own the land already? How affordable is the student housing relative to an apartment in Vancouver of similar size and amenities? 

 

How does the education business make money?  What kind of EBITDA margin do they have?  Can you show a simple balance sheet? Thanks in advance.