Tough call to find best value in schools sector

The share prices of private education groups Advtech and Curro were both under pressure on Tuesday.

It seems the release on Tuesday of underwhelming profit growth numbers by Curro for the year to end-December has put a lid on euphoric sentiment for the private education sector.

All eyes will now be on the soon-to-be-released report card for Advtech, which reported some strain in its schools division at the interim period to end-June 2017.

While private schooling — especially offerings tailored for affordability — remains a lucrative niche, heady growth expectations are fast being tempered by tough economic conditions.

While Advtech and Curro have muscular balance sheets and (fairly) easy access to capital to roll out their respective expansion plans, it is worth noting that small private education player Pembury was scolded by the market. After listing at 100c about a year ago, Pembury (which has now diversified into retirement homes) has seen its shares whacked down to 38c.

Of course, the big question for punters with a penchant for the private education sector is where to find the best value. Pembury is probably a waitand-see option.

So then do shares in Curro, at a trailing earnings multiple of 75 times, represent good long-term value in view of the company’s commitment to continue with aggressive expansion plans and sizeable acquisitions?

Or does one back Advtech at a more modest earnings multiple of 23 times? There’s plenty of homework to do.

Operating something called Media Credit Co-Ordinators is really just asking for trouble in an environment in which the competition authorities are constantly on the prowl. And that seems to have been what Tiso Blackstar, formerly Avusa, realised back in 2011 when it rushed to the Competition Commission to apply for leniency.

The commission’s corporate leniency policy offers a cartel member the opportunity to disclose information on a cartel in exchange for immunity from prosecution and fines.

Most of the other players in the industry hadn’t imagined they were involved in a cartel. Their contention that the system was based on “custom” and not agreement did little to comfort our authorities, who no doubt reckoned a custom was something far more ingrained and therefore more worrying.

The media firms also felt they were safe as they weren’t fixing a price. The process was about setting the percentage discount to a negotiated price for advertising. Anyway, six years later and things are a little clearer. But not entirely.

For instance what should we make of the fact that Caxton’s fine, based on 2016 advertising revenue, is twice the size of Independent’s? Does this mean Caxton’s ad revenue is twice as large as the once mighty Independent group’s?

Also puzzling is that the consent agreement signed off by the tribunal last week included no reference to Media24 and Primedia. Are they still being processed or are they challenging the commission’s ruling? If they challenge and lose, they face a steeper fine in addition to incurring heftier legal fees during the challenge. But perhaps they feel that risk is preferable to admitting to contravening the law.

It will be fascinating if Media24 does challenge the ruling, given Naspers stablemate MultiChoice has already signed off on its consent agreement.