1. Applied Portfolio Management
Student Transportation Inc.
Zulay Sosa Bazante
Sashikanth Yenika
April 14, 2016

2. Agenda Screening Process Business Overview Industry Analysis
Financial Analysis
Financial Projections
Valuation Analysis
Recommendation
Takeaways
Format:
Good
Content:

3. Screening Process Simple Business Model New Industry - GICS Map
Market Cap < 1B
Revenue < 1B
Positive Net Income Margin
5YR Revenue CAGR > 10%
P/E < Industry Average
Debt < Equity
Interest Expenses
Tax Credit
Returns

4. Business Overview Student Transportation Inc.
Founded in 1997 and became a public company in 2004
Provides student transportation solutions in North America
Operates nearly 13,000 vehicles
Strategic alliance with Transportation Sector Consultants
Renewal rate of ~95%
Seasonal business
21 U.S. states and
2 Canadian provinces
2015 Annual Report

5. Business Overview SafeStop
Millennial parents are very engaged on social media
SafeStop™ App connects parents and school officials to school buses
Combines routing systems with GPS tracking
60 schools and universities currently use the app
The 2016 goal is to expand to over 450 schools
2015 Annual Report

6. Business Overview Revenue
CAGR 24.4%
Capital IQ

7. Business Overview SWOT Analysis
SafeStop app
Long term contracts
95% renewal rate
Efficient fleet
Optimization of school bus routes
High leverage
Capital intensive business
Reliance on tax credits S W
10K school districts for potential contracts
More customers looking for efficiencies
Government policies
Decrease in government funding
Unsustainable dividends O T

8. Industry Analysis Overview
High concentration
STB market share: 5%
Volatile revenues
Industry revenue $9.5 billion
IBISWorld

9. Industry Analysis Macroeconomic Drivers
Number of K-12 students
Government funding for primary and secondary education
World price of crude oil
$ per barrel
IBISWorld

10. Industry Analysis Porter’s 5 Forces
Barriers to Entry
Threat of Substitutes
Bargaining Power of Suppliers
Bargaining Power of Buyers
Competitive Rivalry
Moderate
Public school bus services
Moderate
Low
High
Moderate

11. Valuation Analysis Relative Valuation
Not operating in same geography
Doesn’t have same accounting standards
Capital IQ, Annual reports

12. Valuation Analysis Relative Valuation
Capital IQ, Annual reports

13. Financial Analysis Key Ratios
DuPont Analysis
2015 and K

14. Financial Projections
(In US$ m)
Annual reports and group calculations

15. Financial Projections
(In US$ m)
Annual reports and group calculations

16. Valuation Analysis Discount Rate
Cost of Equity
Cost of Debt
Discount Rate
Annual reports, Capital IQ and group calculations

17. Valuation Analysis Discounted Cash Flow – Tax Benefits
Annual reports and group calculations

18. Valuation Analysis Discounted Cash Flow – No Tax Benefits
Annual reports and group calculations

19. Technical Analysis
BEARISH SIGN
BULLISH SIGN
Yahoo! Finance

20. Recommendation External Drivers $4.63 $4.13 (NT) Implied Price
WATCHLIST
(CMP $4.87)
DCF Valuation $2.95 $1.94 (NT)
Triggers for review in future classes
Improved margins
Change in leverage
Decreased dividends
Comparable
Valuation $6.32
External Drivers
Stock Price
Significant market potential
New contracts
Dividend yield 8.9%
High leverage
Liquidity risk
Change in government policy
Stock Price
Annual reports, Capital IQ and group calculations

21. Takeaways Caution P/E ratio significantly higher than industry
Dividends paid more than 10x earnings
Very low returns
Tax Credits
Elaborates cost structure of companies in tax dependent business
Simple business model but complex accounting
Follow KISS not in just business model but overall company