Share price: R41.46 JSE code:
SELL IT FEELS WRONG TO CALL A SELL ON market darling Curro. The private school specialist has not put a foot wrong in its rapid expansion plans, which are now well ahead of the official targets of 80 schools by 2020.
Curro has cornered the fast-growing “affordable” niche in the market, and its brand is quickly gaining a reputation for providing a well-rounded educational offering that increasingly appeals to SA’s burgeoning middle class. Not surprisingly the company has been achieving A+ profit growth.
The growth story remains compelling — even if Curro has needed to tap shareholders a sixth time in as many years for fresh capital — but the share price has overachieved. The trailing earnings multiple is over 140 times, which essentially demands a doubling of the bottom line every year for the next five years.
That’s a tough ask, even though Curro has its land banking plans well in hand and is managing to push its more established schools quickly up the profit J-curve.
The market probably acknowledges it would be near impossible to double earnings every year. But even if it is assumed Curro will earn around 450c/share in the 2020 financial year, the market valuation does not factor in much room for strategic or operational error.
Curro remains an exciting story but there will probably be an opportunity in the years (months?) ahead to buy the shares at more reasonable valuations. Surely …