Meten International IPO: A Buy If The Enterprise Value Nears $450 Million

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Summary

Founded in 2006 and based in China, Meten International is a general English Language Teaching service provider.

With 136 centers, the company runs its own schools besides franchising learning centers. It means that entrepreneurs and other third parties appreciate the know-how accumulated by Meten.

The major risk on Meten International is the fact that it was incorporated in the Cayman Islands.

Investors should understand that the expected equity structure will not benefit minority investors. If the management does not perform, it may be difficult to execute a change of control transaction.

Meten expects to use the proceeds from the IPO to acquire other competitors in China, grow organically, support R&D activities, and increase its marketing efforts among other purposes.

With 49% gross profit margin and 24% revenue growth, Meten International (MEDU) will most likely have an EV/Sales ratio close to 2.5x-3.5x. Notice that other competitors with less revenue growth are selling at 0.46x-2.8x forward sales. If the total enterprise value goes below $450 million, the company will represent a buying opportunity.

With that, there are corporate governance risks. The company expects to have a dual-class ordinary share structure. Also, it may be a controlled entity after the IPO. If the Board of Directors is not independent, the market could react by pushing the price close to 0.46x forward sales.

Let’s include opinion statements regarding the previous images and the services offered by Meten. Investors will not buy shares just because of the online courses or the preparation for universities. Apart from the company’s artificial intelligence (“AI”) technology, the company does not seem to offer extremely innovative products. Read the lines below on the company’s AI capabilities:

significant market share. Besides, it is a leader in an industry that is growing at a high pace.

Frost & Sullivan Report notes that the ELT market in China grew at a CAGR of 19% from 2013 to 2018. Additionally, it expects to grow at a CAGR of 20.7% from 2018 to 2023. The market size is expected to reach RMB365.9 billion or $52.78 billion by 2023.

Meten International is interesting because it operates in a growing market. Usually, investors buy shares of the dominant players. It is the most profitable investment strategy as market leaders, many times, acquire small competitors. Notice that Meten International acquired other businesses in the past.

Most institutional investors will be interested in learning about the company’s facilities. It is impossible to do due diligence on all of them. With that, readers should check the images below. They were taken by an English teacher, who works for Meten International. The company’s classrooms look very well-equipped. Meten appears to have adequate facilities, which investors will most likely appreciate.

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