AEC Education

The Government’s policy on immigration and student visas has forced education courses minnow AEC to warn on profits. Earlier this year the UK Border Agency review of its policy toward allowing students into the country was tightened so AEC was unable to secure visas for those wishing to study.

This lasted for nine weeks and though things stabilised in the Summer the final quarter has shown a reversal in the trend. AEC was on track to achieve a £1.2m profit this year but with half its business generated in the UK through its Malvern House subsidiary this is now likely to be nearer a £250,000 loss.

AEC has suffered as students have chosen to study in other countries such as Australia, Canada and the USA. Efforts to trim its cost base have proven beneficial with items of non-discretionary spend pegged back. AEC is also stepping up its efforts to expand its brand overseas quicker than originally envisaged.

The operations in Asia continue to power ahead with revenue growth of 14 per cent thanks to a solid performance in territories such as Singapore and Malaysia. In Singapore the recent award of a four-year EduTrust certificate (one of only eleven) is pushing some of the smaller players out of the market.

House broker has downgraded its 2011 forecasts to pre-tax profits of £1m and EPS of 1.6p. AEC has a net cash balance of £3m - a significant chunk of its current market value. The warning is a major blow, particularly given its out of the control of management but at current levels the shares look oversold.

We suggested buying the shares in Growth Company Investor at 18.5p in March, now at 11p they offer recovery appeal. Long-term buy.