Why Afya Ltd (NASDAQ: AFYA) stock is going gangbusters today

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Afya Ltd (NASDAQ: AFYA) stock rose 6.79% on 2nd December, 2019 (as of 4:00 pm GMT-5; Source: Google finance) after the company in the third quarter of FY 19 has reported a 124% increase in the revenue to BRL 207 million compared to the corresponding period last year on the back of the maturation of the medical schools and the consolidation of the company’s acquisition since September 2018. The growth came due to an increase in medical school enrollments, higher average tuition fees as well as the acquisitions of Novafapi, FADEP, FASA, IPEMED and Medcel. As a result of the strong top-line growth combined with synergies from the recent acquisition supported an adjusted EBITDA R$80.9 million, which represents a growth of 147% over the same period last year and a margin expansion of 380 basis points. The EBITDA margin expanded 380 basis points to 39.2%, due to operating leverage from the maturation of medical schools, higher average tuition and synergies from acquisitions. Overall, the adjusted net income rose 155% year-over-year to BRL 72 million in the third quarter of 2019.

Moreover, Business Unit 1 net revenue was of BRL 176 million, which is 85% of total net revenue of the third quarter and grew 91% year-over-year. Next Business Unit 2, net revenues of BRL 31 million, which represented about 15% of the net revenues in the third quarter. The company’s cash generation has remained very strong, as the operating cash conversion was of 108% of the adjusted EBITDA for the nine months ended September 30, which is up 84% from the same period in 2018.

Finally, the company has reached 1,572 medical seats that has been approved and 6.4 thousand medical students that has been enrolled by the end of the third quarter 2019, which is 15% above the final student base in the first half of 2019. Afya is the leading medical educational player in Brazil that have the potential to reach 11.3 thousand medical students considering the seats already authorized.

Meanwhile, on the M&A front the company has completed in August the acquisition of IPEC that has a 120 medical school seats in the State of Pará. Further, in November, the company had announced plans of the acquisition of UniRedentor, which is a medical school in the State of Rio de Janeiro with additional 112 seats and a strong portfolio of medical and healthcare graduate programs, fully aligned with the strategy to expand the service to every stage of the medical career.

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