In the ever-evolving world of investments, few stories capture the imagination like that of Cogna (COGN3), a key player in Brazil's education sector. The company's shares have skyrocketed by an astonishing 166.67% in 2025, driven by swirling rumors of a potential merger with rival Yduqs (YDUQ3). As excitement builds, market analysts are closely monitoring the situation, particularly after Cogna's stock price surged from R$ 1.08 at the beginning of January to R$ 2.88 as of May 7, 2025, at 10:21 AM, according to InfoMoney.
Bradesco BBI's analysis indicates that the conditions for a merger are more favorable now than they were back in September 2024. The report highlights that both companies' valuations are converging, with forecasted free cash flow to equity (FCFE) at 9% for Cogna and 10% for Yduqs in 2025. This newfound financial strength lays a solid foundation for a potential business combination, an idea that seemed far-fetched just months ago. Adding to the optimistic outlook, regulatory measures expected on May 9, 2025, promise to clarify the legal landscape, further reducing uncertainties surrounding the merger talks.
Cogna's recent financial results have also contributed to the buzz. The company reported a net profit of R$ 95.1 million in the first quarter of 2025, reversing a loss of R$ 8.5 million from the previous year. This remarkable turnaround was underscored by an adjusted profit of R$ 154 million, marking a staggering 205.7% increase year-on-year, and exceeding analysts' expectations compiled by LSEG, which had anticipated a profit of R$ 108 million.
Roberto Valério Neto, Cogna's CEO, described the current phase as the "profit season for Cogna" during an interview with InfoMoney. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first quarter stood at R$ 547 million, a 14.6% increase from R$ 477 million in the same period last year. Recurring EBITDA reached R$ 556 million, reflecting a 12.2% growth, with the recurring EBITDA margin increasing from 32.2% to 34.2%.
Net revenue for the first quarter totaled R$ 1.67 billion, representing a 5.8% increase, largely driven by the Kroton higher education division, which saw an impressive 18.8% growth. This success was complemented by a 1.5% increase in overall student enrollment, with revenue-generating students growing by 6.5%. The company's strategic focus on high-ticket courses, particularly in medicine, has contributed to a remarkable 23% increase in enrollment revenue.
Despite these positive developments, not all segments of Cogna's business are thriving. The Saber division, which focuses on educational materials and products for municipalities, experienced a significant revenue drop of 31%. Similarly, the Vasta division, which deals with basic education, saw a 6.6% decline. Valério Neto explained that the downturn in Saber was anticipated, primarily due to a decrease in revenue from the National Book and Educational Material Program (PNLD), as the 2024 commercial calendar did not include new purchases, impacting sales volumes.
In response to these challenges, Cogna has been proactive in managing its finances. The company's leverage has decreased to 1.28 times, down from 1.79 times a year earlier, reflecting a strategic approach to debt management. Free cash flow reached R$ 149.6 million, a staggering increase of 1,486% compared to the same period last year, driven by improved cash conversion in the Kroton division.
As Cogna looks to the future, the company is eyeing potential acquisitions, particularly in areas such as artificial intelligence and medical schools. Valério Neto indicated that these would be "tactical M&As" involving investments of tens of millions of reais, aimed at complementing Cogna's existing portfolio. However, he firmly denied any ongoing negotiations regarding a merger with Yduqs, noting that such speculation tends to resurface every six months.
Despite the denials, Valério Neto acknowledged that a merger could make sense from a strategic perspective, given the potential synergies in administrative expenses, distribution, and pricing. The ongoing discussions and interactions within the sector continue to fuel speculation about future collaborations.
As the market remains abuzz with the possibilities of a merger and the impressive financial turnaround, Cogna stands at a pivotal moment in its growth trajectory. The company is not only poised to capitalize on its recent successes but also strategically positioning itself for future opportunities in an ever-competitive landscape. Investors and analysts alike are keenly watching to see how the narrative unfolds in the coming months, particularly with the anticipated regulatory measures and potential M&A activities on the horizon.
In summary, Cogna's recent performance and the potential for a merger with Yduqs have created a compelling narrative in the investment community, showcasing the dynamic nature of Brazil's educational sector and the opportunities that lie ahead.
