Vocation shares plunge on earnings woes

Another $70 million has been wiped from the market value of education and training group Vocation after it halved its earnings forecast due to the fallout from a withdrawal of government funding.

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A Victorian government inquiry into the company’s services in mid-2014 found some students had been enrolled in inappropriate and low-quality courses.

As a result, Vocation lost about $20 million in funding from Victoria’s Department of Education and Early Childhood Development (DEECD).

When the company announced the loss of the funding in late October it was forecasting earnings of between $53 million and $57 million in the current financial year.

But Vocation has now slashed that guidance to between $25 million and $30 million, as enrolments have been hit by the negative sentiment created by the outcome of the Victorian government review.

“The level of impact on our business following the DEECD settlement was unexpected,” chief executive Mark Hutchinson said.

Vocation shares plunged on the slashed earnings forecast, dropping as much as 75 per cent.

The shares ended the day at 19.5 cents, down 30.5 cents, or 61 per cent, cutting the company’s value from $115 million to $45 million.

Vocation has now shed $726 million in market value since early September, when its shares were trading at a high of $3.35.

Former federal education minister John Dawkins quit as chairman last week, heading calls for a renewal of the board in the wake of the government review.

It also triggered a restructure by Vocation, removing third party training providers to reduce the risk of again falling foul of regulators.

OptionsXpress analyst Ben Le Brun said the company faces a significant challenge overcoming the damage to its reputation, but a successful restructure could see its value rebound in the long term.

“There’s a lot of other registered training organisations out there, and people in the business world are spoilt for choice,” he said.

“So if they can rebrand, or somehow start from ground zero and offer in-house training, they may be able to work towards getting those government subsidies back on board.”

Mr Hutchinson said Vocation remained in a healthy financial position, with cash balances of more than $55 million and fully drawn debt facilities of $120 million.