SSPA Category: Tracker Certificates
October 2014
TRACKER CERTIFICATE ON THE
GLOBAL EDUCATION BASKET
•
The global education sector (public and private) was worth an estimated USD 4.5trn in 2013;
being therefore the second-largest global market after healthcare, according to education
consultancy GSV Advisors.
•
Demographic change, greater use of technology and higher spending levels by emerging
countries underpin annual growth forecasts of 7% to 2017 (GSV estimate).
•
The high cost of education is placing a burden on cash-strapped governments, which means
increasing dependence on private spending and a growing role of for-profit education companies.
•
The focus will be directed towards affordability and results, which is why we believe that the
growth drivers for education seem to be coming from e-learning, for-profit education and
language learning as well as from emerging markets’ increasing focus and spending on education
overall (notably in China and Brazil).
•
The rising online enrolment in higher education degrees and credit-granting courses is likely to be
a key trend shaping higher education into 2020, especially in the US and Brazil. Universities’
determination to generate additional revenues and to lower operating and student costs are
crucial factors increasing their demand for education technology solutions.
SHIFTING LIFESTYLES: GLOBAL EDUCATION
Global education, as reported in 2013, is worth an estimated USD 4.5–5.6 trillion.
By 2017, global education is expected to become a USD 6.4–7.8 trillion market.
GLOBAL EDUCATION
Education is a considerable factor for the potential growth of an economy,
critical for innovation and it shows positive spill-over effects on society.
Source: OECD , Julius Baer Source: International Monetary Fund, OECD, Oxford Economics , Julius Baer
Post-secondary education is rising –
emerging markets with catch-up potenial
GDP per cap levels compared to gross
enrolment ratios in tertiary education
0%
10%
20%
30%
40%
50%
60%
70%
So
ut
h
Ko
rea
Ja
pa
n
UK
US
Fr
an
ce
Swi
tz
er
la
nd
G
er
ma
ny
B
ra
zi
l
C
hi
na*
OE
C
D
aver
ag
e
25-34 years old
25-64 years old
% share with tertiary education
* no data for China 25-34y
R
²
= 0.68
0
10
20
30
40
50
60
70
80
90
100
2
2.5
3
3.5
4
4.5
5
PPP USD GDP per capita, log scale
DEMOGRAPHIC TRENDS
Apart from China, also India, Indonesia and Brazil will play a larger role in future
post-secondary education in terms of student mobility and enrolments.
Source: Bureau of labour Statistics, Office of National Statistics, Credit Suisse,
Julius Baer Source: United Nations Population Statistics, Pearsons, Julius Baer
1.6%
2.1%
5.5%
6.8%
9.5%
9.8%
11.1%
11.4%
13.1%
0%
5%
10%
15%
UK
US
South Africa
Russia
Indonesia
Brazil
India
Turkey
China
% household income spent on education, 2011
Consumer demand for education is high in
emerging markets
Despite slowing student growth, house-holds
will keep spending on education
0
100
200
300
400
500
600
40
60
80
100
120
140
160
2000
2010
2020E
2030E
2040E
Tert. enrol. (rhs)
US
China
India
Brazil
Russia
Switzerland
ONLINE EDUCATION
Online education will evolve as an incremental segment and cater mainly to students who rely on
self-study, such as professional skill training and continued education.
Source: Babson survey, Pearson, Julius Baer Source: iResearch, Deutsche Bank, Julius Baer
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
1
2
3
4
5
6
7
8
2002
2004
2006
2008
2010
2012
% share
mn
students taking at least one online course (lhs)
% of total enrolments (rhs)
Number of US college students taking at
least one online course
The number of online education users in
China is expected to surpass 120m by 2017E
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
20
40
60
80
100
120
140
2008
2010
2012
2014E 2016E
%
mn
Online education users (lhs)
y/y growth (rhs)
EDUCATION MARKET SIZE
The size of the education market is large and growing, especially the for-profit
and the eLearning segments.
Source: GSV Advisors, Julius Baer Source: GSV Advisors, Julius Baer
Global education expenditure with forecasts
(2012, 2015E, 2017E)
Global market size on eLearning, language
and for-profit postsecondary education
0
1'000
2'000
3'000
4'000
5'000
6'000
2013
2015E
2017E
USD bn
Corporate & Govt. Learning
Postsecondary
K-12
50
100
150
200
250
300
2013
2014E
2015E
2016E
2017E
USD bn
Global for-profit postsecondary
Global eLearning
SHIFTING LIFESTLYES: GLOBAL EDUCATION
We mapped the investment universe for the global education theme across a number of sectors’ value
chains to highlight the diverse range of entry points available to the theme.
Source: Bloomberg Finance L.P., Julius Baer; n.c. =not covered by Julius Baer, Julius Baer offers no recommendation
Sectors K-12 and childcare Post-secondary, colleges and
universities Education material and content
Online education, EdTech and education hardware
Growth
drivers Middle-class consumers in the emerging markets tend to invest more in education, either to advance their careers or give their children a good start
Increasing dependence on private spending
A growing role of for-profit education companies increasing the focus on affordability and results
Many emerging markets spending high proportions of household income on education, and this trend is expected to continue
Digital is an enabling technology that is transforming the textbook publishing industry, but is also disruptive to traditional business models because it is cheap and easy to distribute.
Online learning is increasingly used as a complementing learning tool.
Many non-profit institutions are moving from class-room to online learning benefitting education technology (EdTech) enablers. Major equity players (by % sales) China: TAL Education (n.c.)
New Oriental Education(n.c.)
Nord Anglia Education (n.c.)
Brazil:
Kroton Educacional (n.c.)
Estacio Participacoes (n.c.) United States:
Apollo Education Group (n.c.)
Grand Canyon Education(n.c.)
Pearson (n.c.)
Reed Elsevier (Buy)
Apple (Hold)
Google (Buy)
STOCKS WITH SIGNIFICANT EXPOSURE TO THE THEME
We mapped the investment universe for the global education theme across a number of sectors’ value
chains to highlight the diverse range of entry points available to the theme.
Source: Bloomberg Finance L.P., Julius Baer; n.c. =not covered by Julius Baer, Julius Baer offers no recommendation
Company Theme focus JB
Rating ISIN Ccy Description
TAL Education K-12
Online education
n.c. US8740801043 USD The largest pure play on K-12 tutoring in China. The Company offers comprehensive tutoring services to K-12 students covering core academic subjects, including mathematics, English, Chinese, physics, chemistry and biology.
New Oriental Education & Technology Group
K-12
Online education
n.c. US6475811070 USD Largest network of learning centres in China. New Oriental Education & Technology Group offers foreign language training, test preparation courses for admissions and assessment tests mainly in China, primary and secondary school education, educational content, online education.
Nord Anglia
Education K-12 n.c. KYG6583A1022 USD Nord Anglia operates one of the largest networks of premium private schools (British style K-12 schools) in the world. 35% of premium school revenues (CY13) came from China, 29% from Europe, 18% from Middle East/Southeast Asia and 18% from North America. Apollo Group Inc. Post-secondary
Online education
n.c. US0376041051 USD Apollo is one of the largest providers of postsecondary education in the US. Its 112 locations enrol over 250,000 students, many of whom work full time. Apollo owns University of Phoenix which is the largest provider of online degrees in the world.
Grand Canyon
Education Post-secondary Online education n.c. US38526M1062 USD Owns the Grand Canyon University, a regionally accredited nondenominational Christian school based in Phoenix. The school offers 120 BA, MA and Doctorate programs, primarily in education, business and healthcare for more than 50,000 students online and at its Phoenix campus.
Kroton Educacional
SA K-12 Post-secondary
Online education
n.c. BRKROTACNOR9 BRL Kroton is one of the largest private education companies in Brazil and the world, operating in the primary, secondary and
postsecondary education segments. It has 53 higher education units, with a presence in 39 cities in 10 Brazilian states and 447 distance-learning graduation centres. The company also has 810 associated schools in all Brazilian states, as well as five units in Japan and one in Canada.
STOCKS WITH SIGNIFICANT EXPOSURE TO THE THEME
We mapped the investment universe for the global education theme across a number of sectors’ value
chains to highlight the diverse range of entry points available to the theme.
Source: Bloomberg Finance L.P., Julius Baer; n.c. =not covered by Julius Baer, Julius Baer offers no recommendation
Company Theme focus JB
Rating ISIN Ccy Description
Estacio
Participacoes SA Post-secondary Online education n.c. BRESTCACNOR5 BRL Estacio is one of the largest private-sector post-secondary groups in Brazil in terms of number of students enrolled in distance learning and campus programmes of undergraduate and graduate courses. Its network caters to middle and lower middle-income workers through a university, four university centres, 34 colleges, and 52 distance learning units.
Pearson Education content
Transition from print to digital
n.c. GB0006776081 GBP Pearson’s core business areas are educational (83% of revenue and 82% of EBITA in 2013) and consumer publishing, and information services. Pearson has a leading position in the provision of school and college textbooks, digital learning resources, and assessment materials.
Reed Elsevier Education content
Transition from print to digital
Buy NL0006144495 EUR Reed Elsevier is a broad-based publishing and information services business. The Elsevier academic publishing unit (35% of revenues) is a global leader in a resilient industry.
2U Inc Education technology n.c. US90214J1016 USD 2U enables non-profit colleges and universities to bring their accredited degree programmes online (in social work, data science, public administration, healthcare, laws and industrial relations) via a cloud-based software-as-a-service (SaaS) platform, with experiences and outcomes that match or exceed on-campus offerings.
Apple Education technology Hold US0378331005 USD Apple is a player in education hardware and the integration of technology into classroom instruction. Areas of exposure include Mac (computers and laptops); iPads in education (over 4.5m sold to US-based education institutions in 2013); content (over 50,000 education apps); software (ilife, iWorks and iTunes U).
Google Education technology Buy US38259P5089 USD Google is an education play via its online products (Goole Apps for Education, Google Earth, YouTube for Schools, Search, Google Drive); its effort to digitalise books (Google Books) and its dominant position in many mobile devices (Android platform) used as a learning tool.
SUMMARY LIST OF STOCKS FOR GLOBAL EDUCATION
List of selected stocks with significant exposure to Global Education in the areas of K-12,
postsecondary education, online education and EdTech (prices as of 27 October 2014).
Source: Bloomberg Finance L.P., Julius Baer; n.c. =not covered by Julius Baer, Julius Baer offers no recommendation
Company 1M 3M 12M
Global Education
ESTACIO PARTICIPACOES SA High BRAZIL BRL n.c. 23.9 n.c. BBB 3.1 -5.5 -17.2 38.9 12.2 0.8 KROTON EDUCACIONAL SA High BRAZIL BRL n.c. 14.3 n.c. B 9.4 -5.0 -7.4 78.0 14.1 1.9 PEARSON PLC High BRITAIN GBp n.c. 1'139.0 n.c. AA 15.0 -7.6 0.6 -16.5 15.0 4.8 REED ELSEVIER NV High BRITAIN EUR Buy 17.3 19 AAA 34.1 -2.1 1.2 17.5 14.6 3.2 NEW ORIENTAL EDUCATIO-SP ADR High CHINA USD n.c. 22 n.c. - 3.5 0.9 15.2 -17.5 12.6 n.a. TAL EDUCATION GROUP- ADR High CHINA USD n.c. 32.8 n.c. - 2.6 -4.6 21.5 75.7 24.8 n.a. NORD ANGLIA EDUCATION INC High HONG KONG USD n.c. 16 n.c. - 1.5 -6.9 -14.8 n.a. 24.5 n.a. 2U INC High UNITED STATES USD n.c. 17.9 n.c. - 0.7 20.2 24.8 n.a. n.a. n.a. APOLLO EDUCATION GROUP INC High UNITED STATES USD n.c. 25.9 n.c. - 2.8 2.0 -10.0 -6.2 13.5 n.a. APPLE INC Medium UNITED STATES USD Hold 105.2 106 A 617.2 4.4 7.7 40.0 13.8 1.9 GOOGLE INC-CL A Medium UNITED STATES USD Buy 548.9 640 BBB 369.0 -6.6 -8.2 8.0 18.2 0.0 GRAND CANYON EDUCATION INC High UNITED STATES USD n.c. 41.2 n.c. - 1.9 0.1 -7.9 -6.6 16.6 n.a.
Exposure to theme Country Cur-rency JB rating Last price Price target ESG rating Market cap (USD bn) Performance (%) P/E 12m fwd Div yld (%)
TRACKER CERTIFICATE ON THE GLOBAL EDUCATION BASKET
Product data
Issuer
Bank Julius Baer & Co. AG, Zürich
Lead Manager
Bank Julius Baer & Co. AG, Zürich
Rating
Moody‘s A1
Participation
100%
Currency
Composite USD
Fixing date
7 November 2014
Maturity date
7 November 2016
Additional details
No dividend reinvestment
Listed at the SIX Swiss Exchange
Valor / ISIN / Symbol 24202148 / CH0242021480 / JFCHG
In subscription until 7 November 2014, 12:00 CET
TRACKER CERTIFICATE ON THE GLOBAL EDUCATION BASKET
Summary
The product suits investors who…
•
are looking for alternative source of income
•
intend to participate in a diversified equity portfolio
•
believe in the upside potential of the underlying stocks and have a positive view on the
investment theme “Global Education”
Equity Derivatives
Bank Julius Baer & Co. Ltd.
Bahnhofstrasse 36
P.O. Box
CH-8010 Zürich
Tel. +41 (0) 58 888 8181
Email: derivatives@juliusbaer.com
derivatives.juliusbaer.com
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