Buy AFYA
Key Financial Metrics
Fealty’s Foundational Reasons
Market Leadership and Expansion: Afya is the leading medical education group in Brazil, with a strong track record of strategic acquisitions and organic growth, solidifying its dominant position in a high-demand sector.
Consistent Financial Performance: The company has demonstrated impressive revenue and EBITDA growth, with expanding margins and robust cash generation, driven by a resilient business model and operational efficiencies.
Scalability and Synergies: Afya's integrated ecosystem of undergraduate programs, continuing education, and medical practice solutions creates multiple revenue streams and operational synergies, enhancing long-term profitability.
Favorable Industry Dynamics: With a growing demand for healthcare professionals in Brazil and regulatory support for medical education expansion, Afya is well-positioned to capitalize on favorable demographic and economic trends.
Margin of Safety: Based off of our calculation of Afya’s intrinsic value of $26.61, the current price of $15.88, leaves a healthy margin of safety.
Afya’s Origins and Revenue Streams
Afya Limited is the leading medical education group and digital healthcare solutions provider in Brazil, focused on training healthcare professionals throughout their careers. The company was incorporated in the Cayman Islands in 2019 but has deep roots in Brazil's education sector through a series of strategic acquisitions and organic growth initiatives. Afya has built a comprehensive ecosystem that integrates undergraduate medical education, continuing education for physicians, and a suite of digital healthcare solutions aimed at enhancing professional development, clinical decision-making, and patient management.
Afya’s growth has been marked by a strategic focus on consolidation within Brazil’s highly fragmented medical education market. The company has expanded through acquisitions of medical schools and healthcare technology companies, allowing it to broaden its service offerings and geographic footprint. Significant milestones include the integration of key acquisitions such as UNIMA and Afya Jaboatão, which contributed to its scale and operational efficiencies. More recently, the acquisition of Unidompedro and Faculdade Dom Luiz has further solidified Afya’s presence in key regions like Bahia.
Afya's strategy revolves around expanding its footprint through acquisitions, increasing medical seat capacity, and driving synergies between its educational and digital offerings. The company's competitive advantage lies in its integrated approach, combining education with practical tools to support professionals throughout their careers. Afya’s deep regulatory knowledge and relationships with Brazil’s Ministry of Education allow it to efficiently navigate the complex approval processes required for medical seat expansions.
Afya consistently delivers strong financial performance, characterized by double-digit revenue growth, expanding EBITDA margins, and robust cash flow generation. The company’s ability to generate high operating cash flow, coupled with disciplined capital allocation, positions it well for future expansion. Afya’s diversified revenue streams across education and digital solutions further enhance its resilience against economic fluctuations.
With a well-established market leadership position, a scalable business model, and a clear path for growth through strategic acquisitions and digital innovation, Afya represents a compelling investment opportunity in the rapidly expanding Brazilian healthcare education market. Its commitment to integrating education with digital healthcare solutions ensures long-term value creation for investors.
Afya reports its revenue in three distinct segments: undergraduate programs, medical practice solutions, and continuing education.
Undergrad Revenue - 75.6%
Afya's core segment offers educational services through undergraduate courses, primarily focused on medicine, as well as other health sciences and undergraduate programs. This segment generates revenue through tuition fees, driven by high demand for medical education in Brazil and strategic seat expansions.
Medical Practice Solutions Revenue - 17.9%
Formerly known as Digital Services, this segment offers content and technology solutions for medical education, clinical decision software, practice management tools, and digital health services such as telemedicine and electronic medical records. Revenue is driven by subscriptions and service fees from both business-to-business (B2B) and business-to-physician (B2P) models.
Continuing Education Revenue - 6.5%
This segment provides specialization programs, graduate courses, and preparatory courses for medical professionals. The revenue stream is fueled by physicians seeking further specialization and career advancement opportunities within Afya’s integrated educational ecosystem.
These segments reflect Afya’s strategic focus on serving the full professional lifecycle of healthcare professionals, leveraging both educational and digital solutions to drive long-term growth.
Why is Afya a Buy Now?
Afya Limited presents a unique investment opportunity beyond traditional growth drivers. The company’s strategic positioning, operational excellence, and long-term sustainability factors make it an attractive choice for investors seeking exposure to the intersection of healthcare and education in an emerging market. Here’s why Afya stands out:
Afya operates in a sector with high barriers to entry, benefiting from Brazil's growing demand for healthcare professionals and stringent government regulations limiting competition. The country’s physician-to-population ratio remains below global standards, ensuring long-term demand for medical education. Afya’s strategic campus locations in underserved regions further position the company to capture untapped market potential while benefiting from government support through initiatives like the “Mais Médicos” program.
Unlike traditional education companies, Afya’s revenue model is underpinned by long-term enrollment cycles and contractual growth visibility. The company benefits from a six-year maturation process for its medical school seats, providing a clear pathway for organic revenue expansion as student cohorts advance through their programs. Recent acquisitions, such as Unidom and additional seat authorizations at key campuses, further contribute to revenue visibility and scalability.
Afya is not solely dependent on traditional tuition fees; it has successfully diversified into digital healthcare solutions through its Medical Practice Solutions segment. This segment provides clinical decision support, practice management tools, and telemedicine services to physicians, creating a high-margin, recurring revenue stream that extends beyond student enrollment cycles. With over 326,000 active users engaging with Afya’s digital platforms, the company is positioned to capitalize on the digitalization of healthcare education and practice.
Afya’s financial results demonstrate operational resilience, with a robust Adjusted EBITDA margin of 44.4% in the first nine months of 2024, reflecting disciplined cost management and strong revenue growth. The company’s impressive operating cash conversion ratio of 109.7% highlights its ability to efficiently translate earnings into cash, providing flexibility for future growth initiatives, debt reduction, and potential shareholder returns.
Afya has a proven track record of executing accretive acquisitions that enhance its geographic reach and service offerings. The acquisition of Unidom added 300 medical seats and strengthened its footprint in Salvador, one of Brazil’s largest metropolitan areas. With a disciplined approach to integrating acquired businesses, Afya consistently unlocks synergies, improving profitability and expanding its competitive moat.
Afya’s strong fundamentals, innovative business model, and strategic market positioning make it a compelling investment opportunity. With consistent financial performance, scalable growth prospects, and diversification into digital healthcare solutions, the company is well-positioned to deliver long-term value to investors. Those looking for exposure to Brazil's growing healthcare education sector with a blend of stability and expansion potential should consider Afya as a strategic addition to their portfolios.
Afya’s Potential Pitfalls
Regulatory Risks: Afya's growth is heavily dependent on regulatory approvals for medical seat expansions, and any delays or unfavorable changes in Brazil's educational policies could hinder expansion plans and revenue growth.
Macroeconomic Volatility: Economic instability in Brazil, including inflation, currency fluctuations, and government budget constraints, could impact student enrollment rates and affordability of tuition fees.
Acquisition Integration Risks: While Afya’s expansion strategy relies on acquisitions, the failure to efficiently integrate newly acquired institutions and extract expected synergies could strain operational efficiency and profitability.
Competition and Market Saturation: Increasing competition from other private educational institutions and potential market saturation in key regions could pressure Afya’s pricing power and enrollment growth.
Dependence on Medical Education Demand: Any shifts in demand for medical education due to changing healthcare policies, technological advancements, or alternative education methods could adversely affect Afya’s long-term growth prospects.
The Ideal Investor
If you value a company with strong growth potential in a specialized market, appreciate a business model with recurring revenue and expansion opportunities, and are comfortable with the inherent risks of operating in a dynamic and evolving industry, you may be the ideal investor for Afya.
Who Might Look Elsewhere
If you are seeking low-risk, dividend-focused investments, or prefer businesses with minimal exposure to regulatory uncertainties and economic fluctuations, you may want to look elsewhere.