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CIBT Education offers small-cap GROWTH and STABILITY

For investors used to one-way markets, 2022 has been a tough year.…
The post CIBT Education offers small-cap GROWTH and STABILITY appeared first on The…

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For investors used to one-way markets, 2022 has been a tough year. It’s also been an invaluable learning experience.

The days of being a ‘lazy’ investor and just riding index stocks higher are over (at least for the foreseeable future). Instead, investors once again need to be astute stock-pickers in order to manage current tough market conditions.

A small-cap stock for stock-pickers

CIBT Education Group Inc. (TSX:MBA/OTC:MBAIF) is a stock for stock-pickers. Take a look.

At first glance, investors might think that the strong, steady growth pattern for this 10-year chart belongs to some Fortune 500 companies. But, no, this is the 10-year chart of a CAD$33 million small cap.

The stable, consistent growth that one would expect of a large-cap stock. But CIBT has the growth potential of a small cap.

In a year in which the charts of even many blue-chip stocks look terrible, CIBT Education has held up remarkably well.

The recent market meltdown has hit small caps especially hard. Most are down 70 – 80% YTD (if not more). CIBT’s 52-week trading range? Roughly 30%. Strong and stable.

Why? Why does the chart of this small cap, over both shorter and longer durations, look so good?

There is nothing magical about CIBT Education’s formula for market success: loads of experience, an extremely well-positioned business model, and consistently strong execution.

Student housing: the best fundamentals in real estate today

CIBT Education (as its name implies) is in education. However, CIBT is also a vertically-integrated student housing and property management company.

Education has been a consistent growth industry. Real estate has been a consistent growth industry.

With CIBT Education, 2 + 2 = 5. That’s the ‘math’ of vertical integration.

This Company is no stranger to The Market Herald audience. We previously featured CIBT in a full-length feature from September 2021.

Vancouver’s Red Hot Real Estate Market Increases Demands for CIBT’s Student Housing Business

A lot has changed in the 14 months since, in both stock markets and real estate markets. Both previously looked like can’t-miss propositions for investors.

Since then, equity markets have suffered a meltdown. And most real estate markets are under extreme pressure in this environment of rapidly rising interest (and mortgage) rates. But not student housing.

The Market Herald recently sat down for a chat with CIBT’s CEO, Toby Chu. We expected to hear a ‘tale of caution’: difficulties weathering Covid lockdowns and other restrictions, storm clouds on the real estate horizon. We got the opposite.

Covid had only a mild impact on both CIBT’s top-and-bottom-line results. And while other real estate markets are already sagging under the strain of higher interest rates, Chu was gushing about the continuing strong fundamentals of the student housing market.

The CEO explained how and why student housing is such a bellwether housing market.

“Most students’ education plans do not change permanently, and the plan could be delayed due to the pandemic and their education re-starts after the pandemic is over. Schools across the education sector are seeing strong enrollment growth in the 2022 – 2023 academic year. When students come to study in Vancouver, our rental properties become full because we provide our housing services to over 90 schools in Metro Vancouver.”

A counter-cyclical bellwether for investors

While student housing is a real estate niche, it has several important characteristics that make it entirely unique versus other real estate sub-sectors.

Lower sensitivity to interest ratesLower sensitivity to recessionary conditionsMinimal competition due to significant capital requirementsStrong demand and a large addressable market

With all other segments of the real estate market, market strength is ultimately driven by real estate purchases – purchases financed with significant levels of debt. As interest rates shoot higher, this automatically puts the brakes on those markets.

Student housing, however, is a rental market. Changes in interest rates have no direct impact on demand. Most parents pay for their children’s education, including their housing needs.

Similarly, student housing is a relatively recession-proof market. Education, in general, is one of the last family expenditures to get reduced in recessionary conditions.

More importantly, roughly 75% of the student housing market (in Canada) is comprised of international students. These are generally all children of affluent families and are, therefore, even less likely to make cuts in their education budget.

Imagine operating in a large market where your biggest competitor is quite happy to see you increase your market share. That’s student housing.

The largest competitor of CIBT Education in the student housing market is government. Canada’s federal government, via the Canadian Mortgage and Housing Corporation (CMHC) is active in providing student housing.

However, this isn’t a for-profit enterprise seeking to grow. This is publicly-funded support for student housing.

The government’s objective is to minimize this spending and have as small a footprint as possible in the student housing market. The more success that CIBT Education has in providing privately funded-and-operated student housing, the fewer tax dollars the federal government needs to invest here.

Major barriers to entry, a huge addressable market

Despite the lack of for-profit competition in the off-campus student housing market, this is still a real estate market. This means that there are major barriers to entry for new competitors.

With prospective competitors of CIBT needing first to buy or develop their own student housing properties, substantial capital needs and rising interest rates increase these barriers to entry. And this is a big market.

CIBT Education is based in Canada and provides education services and student housing for the Canadian market. More specifically, CIBT is heavily focused on the Vancouver (British Columbia) student housing market.

In Vancouver alone, this is a $1.6 billion housing market.

Let’s put this into context.

CIBT Education is the largest off-campus housing provider in this $1.6 billion market via its subsidiary, Global Education City (GEC). The fundamentals for the B.C. student housing market are extremely robust.

Not surprisingly, CIBT is executing well in this robust market. In the Company’s most recently reported results (Q3 2022), CIBT reported YTD revenues of CAD$52.67 million, an 18% year-over-year increase during the pandemic periods. Adjusted EBITDA (YTD) rose to CAD$14.96 million, a 39% y-o-y increase.

Looking for more growth?

The graphic above shows a rising growth curve for CIBT in terms of its total bed count and the total square footage of property under its GEC brand. The Company’s best years are projected to be immediately ahead. Is this plausible?

Let’s crunch the numbers. CIBT is forecasting its total bed count to rise from 1260 in 2022 to 3732 by 2025, ~200% growth over the next 3 years.

As noted above, the University of British Columbia alone has a 5,000-student waiting list for student housing.   Bed count numbers certainly look achievable.

But CIBT can’t simply conjure new rental units into existence. It needs additional properties (and student housing units) to fill this unmet demand. Here is where sharp investors will start to salivate.

A large-and-growing property management portfolio

CIBT’s $520 million property portfolio comprises 7 student housing properties currently in operation and 8 under development, adding another $900 million to its planned portfolio. More than half of CIBT’s total pipeline of student housing has yet to come online.

As these under-development projects are completed, they will account for the expected/projected growth in gross buildable square footage.

CEO Chu told The Market Herald that one of these development projects is due to be completed by year-end (GEC King Edward). Each new student housing facility that is added means a large incremental jump in revenues.

Translation: 2023 is looking like a much better year for revenue and earnings growth than 2022. How much potential revenue growth is ripening on the vine for CIBT? Let’s do some more crunching.

The average rent for a single-occupancy student housing unit: C$14,000 per year.

The waiting list for UBC: 5,000 students.

5,000 X CAD$14,000 = CAD$70 million.

CIBT Education can more than double its total revenues just by addressing the student housing waiting list of one educational institution, as an example.

B.C.’s other major university, Simon Fraser University, reports an official waiting list of ‘only’ 1,240 students (CAD$17.3 million per year in potential additional revenues). However, SFU is only serving 7.5% of SFU’s total student population, according to a recent Vancouver Sun newspaper report.

Besides the two largest universities in Vancouver, there are over 200 other public and private colleges and universities in Metro Vancouver. Most of these institutions do not provide housing.

CIBT Education Group didn’t just stumble into this lucrative and recession-proof housing market. CIBT’s roots are in education.

The Company has 28+ years of experience in providing education services in Canada. This includes Sprott Shaw College.

The company has its own pipeline of students requiring student housing. Via GEC, CIBT then offers a full spectrum of services to meet students’ housing needs.

Excellent demographics for Canadian (and B.C.) student housing

U.S.-based investors might wonder why CIBT is operating in the Canadian student housing market. Here, a number of important factors drive the strength of this student housing market.

As previously noted, the B.C. student housing market alone is a very robust market: $1.6 billion per year. Demand for student housing is heaviest among international students (75% of CIBT’s student housing population), and the number of international students in Canada rose by 150% from 2010 – 2020 alone.

The Canadian housing market, in general, has seen its vacancy rate shrink to an ultra-tight 0.8%. Students looking for accommodations outside of on-campus “student housing” units have very few options.

Canada has become the preferred destination for international students.

While CIBT generates its own pipeline of students for student housing, the overall “pipeline” of foreign students seeking student housing in Canada (and Vancouver) is poised to continue to grow.

CIBT offers a superb value proposition

The Company is operating primarily in a CAD$1.6 billion market, with substantial barriers to entry and mostly only passive competition. Its market cap is only CAD$32 million.

CIBT Education Group has CAD$520 million of assets on its balance sheet and completed financings of CAD$0.50 billion during the past few years. But its market cap is only CAD$32 million.

CIBT offers investors CAD$60.9 million in annual revenues currently, with CAD$5.177 million in net income and EBITDA of CAD$21.4 million. Yet the market cap is only CAD$32 million.

The Company is a steal at its current valuation. But while most companies/industries are starting to wilt under the burden of rising interest rates and increasingly recessionary conditions, CIBT is expecting its best growth years to be immediately ahead.

CIBT Education is a stable buy-and-hold investment that true “investors” can add to their portfolios.

CIBT Education is a high-growth, recession-proof small cap with a track record of strong performance and its best years still ahead.

The best of both worlds for investors.

When CEO Toby Chu was talking about his recent interactions with investors (in investor road shows and industry events), he remarked to The Market Herald how he was seeing an increasing interest from institutional investors.

Coming up in another full-length feature for The Market Herald, what the Smart Money sees when they look at CIBT – and why they like it.

CIBT.netCIBT corporate presentation

FULL DISCLOSURE: This is a paid article by The Market Herald.

The post CIBT Education offers small-cap GROWTH and STABILITY appeared first on The Market Herald.

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“We Are Headed For Another Train Wreck”: Bill Ackman Blames Janet Yellen For Restarting The Bank Run

"We Are Headed For Another Train Wreck": Bill Ackman Blames Janet Yellen For Restarting The Bank Run

Yesterday morning we joked that every…

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March 23, 2023

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"We Are Headed For Another Train Wreck": Bill Ackman Blames Janet Yellen For Restarting The Bank Run

Yesterday morning we joked that every time Janet Yellen opens her mouth, stocks dump.

Well, it wasn't a joke, and as we repeatedly noted today, while Jerome Powell was busting his ass to prevent a violent market reaction - in either direction - to his "most important Fed decision and presser of 2023", the Treasury Secretary, with all the grace of a senile 76-year-old elephant in a China market, uttered the phrase...

  • YELLEN: NOT CONSIDERING BROAD INCREASE IN DEPOSIT INSURANCE

... and the rest was silence... or rather selling.

Commenting on our chart, Bloomberg's Mark Cudmore noted it was Yellen who was "to blame for the stock slump", pointing out that "the pessimistic turn in US stocks began within a minute of Janet Yellen starting to speak."

The S&P 500 rose almost 1% in the first 47 minutes after the Fed decision. Powell wasn’t the problem either: the index was 0.6% higher in the first 17 minutes after his press conference started.

Why am I picking that exact timing of 2:47pm NY time? Because that is the minute Yellen started speaking at the Senate panel hearing. The high for the S&P 500 was 2:48pm NY time and it fell more than 2.5% over the subsequent 72 minutes. Good effort.

Picking up on this, Bloomberg's Mark Cranfield writes that banking stocks globally are set to underperform for longer after Janet Yellen pushed back against giving deposit insurance without working with lawmakers. He adds that "to an aggressive trader this sounds like an invitation to keep shorting bank stocks -- at least until the tone changes into broader support and is less focused on specific bank situations." Earlier, we addressed that too:

Looking ahead, Cranfield warns that US financials are likely to be the most vulnerable as they are the epicenter of the debate. Although European or Asian banking names may outperform US peers, that won’t be much consolation for investors as most financial sector indexes may be on a downward path.

The KBW bank index has tumbled from its highs seen in early February, but still has a way to go before it reaches the pandemic-nadir in 2020. Traders smell an opening for a big trade and that will fuel more downside. Probably until Yellen blinks.

And if Bill Ackman is right, she will be doing a whole lot of blinking in days if not hours.

Ackman crying in public

While we generally make fun of Ackman's self-serving hot takes on twitter, today he was right when he accused Yellen of effectively restarting the small bank depositor run which according to JPMorgan has already seen $1.1 trillion in assets withdrawn from "vulnerable" banks. This is what Ackman tweeted:

Yesterday, @SecYellen  made reassuring comments that led the market and depositors to believe that all deposits were now implicitly guaranteed. That coupled with a leak suggesting that @USTreasury, @FDICgov and @SecYellen  were looking for a way to guarantee all deposits reassured the banking sector and depositors.

This afternoon, @SecYellen walked back yesterday’s implicit support for small banks and depositors, while making it explicit that systemwide deposit guarantees were not being considered.

We have gone from implicit support for depositors to @SecYellen explicit statement today that no guarantee is being considered with rates now being raised to 5%. 5% is a threshold that makes bank deposits that much less attractive. I would be surprised if deposit outflows don’t accelerate effective immediately.

Ackman concluded by repeating his ask: a comprehensive deposit guarantee on America's $18 trillion in assets...

A temporary systemwide deposit guarantee is needed to stop the bleeding. The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back.

... but as we noted previously pointing out, you know, the math...

... absent bipartisan Congressional intervention - which is very much unlikely until the bank crisis gets much, much worse - this won't happen and instead the Fed will continue putting out bank fire after bank fire - even as it keeps hiking to overcompensate for its "transitory inflation" idiocy from 2021, until the entire system burns down, something which Ackman's follow-up tweet was also right about:

Consider recent events impact on the long-term cost of equity capital for non-systemically important banks where you can wake up one day as a shareholder or bondholder and your investment instantly goes to zero. When combined with the higher cost of debt and deposits due to rising rates, consider what the impact will be on lending rates and our economy.

The longer this banking crisis is allowed to continue, the greater the damage to smaller banks and their ability to access low-cost capital.

Trust and confidence are earned over many years, but can be wiped out in a few days. I fear we are heading for another a train wreck. Hopefully, our regulators will get this right.

Narrator: no, they won't.

Tyler Durden Wed, 03/22/2023 - 21:20

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China’s Auto Industry Association Urges “Cooling” Of Price War, As Major Manufacturers Slash Prices

China’s Auto Industry Association Urges "Cooling" Of Price War, As Major Manufacturers Slash Prices

Just hours after we wrote about maniacal…

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March 23, 2023

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China's Auto Industry Association Urges "Cooling" Of Price War, As Major Manufacturers Slash Prices

Just hours after we wrote about maniacal price cutting in the automotive industry in China, China's auto industry association is urging automakers to "cool" the hype behind price cuts.

The statement was made in order to "ensure the stable development of the industry", Automotive News Europe reported on Tuesday. 

The China Association of Automobile Manufacturers even went so far as to put out a message on its official WeChat account, stating that "A price war is not a long-term solution". Instead "automakers should work harder on technology and branding," it said. 

The consumer disagrees...

Recall we wrote earlier this week that most major automakers were slashing prices in China. The move is coming after lifting pandemic controls failed to spur significant demand in China, the Wall Street Journal reported this week. Ford and GM will be joined by BMW and Volkswagen in offering the discounts and promotions on EVs, the report says. 

Retail auto sales plunged the first two months of the year and automakers are facing additional challenges in trying to transition their business models to prioritize EVs over conventional internal combustion engine vehicles. 

Ford is offering $6,000 off its Mustang Mach-E, putting the standard version of its EV at just $31,000. Last month, only 84 of the vehicles were sold, compared to 1,500 sales in December. There was some pulling forward of demand due to the phasing out of subsidies heading into the new year, and Ford had also cut prices by about 9% in December. 

A spokesperson for Ford called it a "stock clearance". 

Discounts at Volkswagen are ranging from around $2,200 to $7,300 a car. The cuts will affect 20 gas powered and electric models. Its electric ID series is seeing price cuts of almost $6,000. The company called the cuts "temporary promotions due to general reluctance among car buyers, the new emissions rule and discounts offered by competitors."

Even more shocking is Citroën-maker Dongfeng Motor Group, who is offering a 40% discount on its C6 gas-powered sedan, now priced at $18,000. 

Kelvin Lau, an analyst at Daiwa Capital Markets, told the Journal that automakers are also trying to get rid of 500,000 vehicles collectively stored in their inventory, most of which are older vehicles that won't meet new emissions standards.

David Zhang, a Shanghai-based independent automobile analyst, added: “Some car makers have been seeing very few sales. At this rate, the manufacturers’ production and dealership networks will collapse.”

Tyler Durden Wed, 03/22/2023 - 18:00

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International

COVID origins debate: what to make of new findings linking the virus to raccoon dogs

New reports suggest the pandemic’s origins may be linked to raccoon dogs sold at Wuhan’s Huanan Wholesale Seafood Market. A virologist explains.

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March 23, 2023

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Voodison328/Shutterstock

The origin of SARS-CoV-2, the virus that causes COVID, has long been a topic of heated debate. While many believe SARS-CoV-2 spread to humans from an animal at Wuhan’s Huanan Wholesale Seafood Market, others have argued the virus was accidentally leaked from a lab at the Wuhan Institute of Virology.

Over the past week there has been intense activity surrounding the emergence of new data relevant to this question. In particular, reports emerged that the pandemic’s origins may be linked to raccoon dogs which were being sold illegally at the market.

The excitement stemmed from a re-analysis of raw data generated as part of official investigations into the role of the Huanan Wholesale Seafood Market in the outbreak.

The team of international scientists working on this re-analysis (from North America, Europe and Australia) alerted the World Health Organization and discussed the topic in an article published in The Atlantic. And the scientists themselves have now released a report on the issue, providing greater detail.

So what can we make of their findings? Will this development shift the course of the ongoing debate? Let’s take a look.

The Huanan market

In January 2020, writing about the emergence of what we now call SARS-CoV-2, I stated the importance of understanding how this pandemic began. It remains important to determine the virus’s origins because this knowledge may help us stop the next pandemic occurring.

Even very early in 2020, it was clear that the central Chinese city of Wuhan (a major metropolis and travel hub) was the epicentre of the outbreak. Within Wuhan, the Huanan seafood market stood out as it was associated with many – but not all – of the earliest cases. Indeed, the market was closed on January 1 2020, animals were culled, and the site was disinfected.

Suspicions arose given the role that animal trade and markets had played in the emergence of the closely related SARS-CoV-1 virus (which caused SARS, a widespread outbreak of viral respiratory disease) nearly two decades earlier. Evidence emerged that the Huanan seafood market also sold live mammals, including a fox-like mammal known as a raccoon dog, that we now know are susceptible to SARS-CoV-2.

Later epidemiological and genetic analyses further focused in on the market, and even specific stalls within it, as being the origin of the pandemic.

Read more: The original Sars virus disappeared – here's why coronavirus won’t do the same

The new data

As part of the official investigations into the market, swabs were collected from various parts of the market in the two months after it shut down at the start of 2020. The scientists who undertook this research, from the Chinese Center for Disease Control and Prevention, posted their analysis as a pre-print (a study yet to be peer-reviewed) in February 2022.

In this, the team concluded that the market likely played a significant role in SARS-CoV-2’s early spread, but that they couldn’t detect the virus in samples taken directly from animals. They reported that all the virus evidence found was associated with humans, and it was therefore likely the virus had been brought into the market by humans, not animals, and so perhaps the pandemic began elsewhere.

An illustration of SARS-CoV-2, the virus that causes COVID.
The origin of SARS-CoV-2 has been a topic of heated debate. Kateryna Kon/Shutterstock

However, prior to any official peer-reviewed publication, the raw data from this work was released on an open scientific database called Gisaid. And the group of scientists who re-analysed this data did actually find an association between SARS-CoV-2 and animals, in particular raccoon dogs in the market.

They found DNA from animals mixed in with SARS-CoV-2 in a number of samples from the market. Some positive samples contained no human DNA and mostly raccoon dog DNA. This mix of virus and animal material is consistent with an infected animal – not a human – shedding virus, which is what you might expect if SARS-CoV-2 originated from animals brought into the market. Unfortunately, samples from a living raccoon dog were either not taken or not reported, and the official investigation makes no mention of raccoon dogs.

Where to from here?

While this latest data is one additional piece of the puzzle that supports an origin of the pandemic linked to Wuhan’s animal trade, it is unlikely to provide irrefutable evidence. It’s important to note it’s also a pre-print.

Ideally, we would like animal samples from early December 2019, and to compare animal virus genomes with human ones. It will also be crucial to follow events backwards through the animal trade and farming systems to work out where the animals got the virus from in the first instance.

Further, we must bear in mind that the virus could have easily been given to a raccoon dog by an infected human, or that the association between raccoon dog DNA and SARS-CoV-2 may be coincidental.

Read more: We want to know where COVID came from. But it’s too soon to expect miracles

However, evidence is accumulating that official investigations have left a gap in their research – particularly around the role that animals like raccoon dogs and the wildlife trade played in the origins of the pandemic.

While it may be unlikely that we will ever get concrete evidence as to how SARS-CoV-2 entered the human population, we can still think pragmatically and seek to alter behaviour and practices to reduce the chance of a new pandemic. One immediate target would be food systems (encompassing farm to fork), and how to make farming and the wildlife trade safer for all, potentially by enhancing virus surveillance in animals.

Connor Bamford receives funding from Wellcome Trust, UKRI, SFI and BMA Foundation.

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