Raffles Education

Raffles Education: Announced a CHF29.1m (~$39.8m) acquisition of a hotel and facilities, seven commercial units and a plot of land with teaching building and dormitories, in Nendaz, Switzerland to establish a hospitality management, design and a Swiss International Baccalaureate school, marking its maiden entry into Europe. According to the group, the acquisition is expected to be value accretive and will have a positive impact on RaffleEdu’s Jun FY15 financial performance. The expansion into Europe is in line with RafflesEdu’s progressive morphing into a group with three related businesses that will drive its future growth, viz a premier private education provider, management of education assets and facilities and education-related real estate investment and development. RafflesEdu’s strategy is for students across its colleges to come for short stays to undertake cultural and language immersion courses before implementing full hospitality management programmes. Despite RafflesEdu’s positive guidance, we have our reservations on the group’s latest venture into Switzerland, given its muted revenue growth (FY14: $127.4m, -1% y/y) from its Asian colleges / campuses, and the lack of familiarity on its brandname and execution risks faced in trying to penetrate the Swizz market. Competition will invariably be very tough to compete for students in Switzerland. As a guide, Switzerland’s hospitality management schools are frequently ranked amongst the top by global 5-star Hoteliers, with many considering Swiss hospitality education to be the best in the world. Raffles Education currently has a net gearing of 0.37x. At the current price, the stock trades at 0.6x P/B.