We value Afya based on a discount free cash flow model (FCFE), employing a Ke and perpetual growth assumptions of 14.5% and 5.0%, respectively, yielding a 12-month target price of US$16.0/share.

Our key risks and concerns for the target price: 1) better than expected operating margins; 2) occupation rate higher for longer; 3) continuing education starting to ingnite sales; and 4) better than expected digital services execution.

If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could outperform our target.