Acorns that may be­come oaks

PLG’s schools were for­merly ho­tels, con­fer­ence cen­tres and wed­ding venues

Financial Mail - Investors Monthly - - Guest Column - AN­THONY CLARK

Don’t ex­pect prof­its from PLG im­me­di­ately; it will have to grow and ex­pand its net­work

T wo small com­pa­nies have re­cently caught my eye. The first is a former down-and-out tech mi­cro-cap that has been re­sus­ci­tated into a prof­itable new en­tity, and the sec­ond a forth­com­ing Alt-X listing in the lo­cal af­ford­able school­ing sec­tor.

An­sys, with a mar­ket cap­i­tal­i­sa­tion of R635m, has a port­fo­lio of tech­nol­ogy busi­nesses in the rail, min­ing, de­fence, in­for­ma­tion se­cu­rity and telecommunications sec­tors.

It has been heav­ily loss mak­ing as the cur­rent chair­man and former CEO and ma­jor­ity share­holder, Teddy Deka, ra­tio­nalised and re­struc­tured an old busi­ness he bought into. But af­ter a near two-year turnaround, it is in the black and well po­si­tioned for the fu­ture.

There have been three key growth ar­eas for the com­pany in the past year.

The first is fi­bre-op­tic ser­vices in the telecommunications di­vi­sion. There should be a few more years’ growth as SA up­grades its tele­coms back­bone.

The sec­ond is mine safety so­lu­tions. As min­ing com­pa­nies be­come more cog­nisant of work­ers’ health and safety, money is be­ing spent on this.

The third is tech­nol­ogy to mon­i­tor wagon and lo­co­mo­tive move­ment. Transnet is up­grad­ing the mon­i­tor­ing and track­ing of its vast rail stock.

You could have bought into An­sys at 30c/share two years ago. It’s now 140c, as the mar­ket has re­warded it for its re­turn to prof­itabil­ity, and earn­ings growth. Its in­terim re­sults to Septem­ber 2016 showed rev­enue ris­ing by 164% to R409m, profit be­fore tax up by 710% to R48m and HEPS in­creas­ing by 472% to 7.57c/share. I’m fore­cast­ing 17c/share by March 2017, which at the time of writ­ing places An­sys on a 8.2 p:e.

I’m not sug­gest­ing An­sys is a high p:e stock, but if earn­ings are as the chair­man ex­pects, a siz­able busi­ness could be­gin to grow and then the com­pany will start look­ing cheap.

A new listing in the school­ing sec­tor will be Pem­bury Lifestyle Group (PLG). This small busi­ness, with about seven cam­puses, 19 schools and 1,910 pupils, plans to list on the Alt-X in late March to raise R140m at an is­sue price of 100c/share, to value the busi­ness at a mod­est R350m. It will be the min­now in the listed ed­u­ca­tion sec­tor, dwarfed by ADvTech and Curro Hold­ings.

But it was not that many years ago that Curro was valued at a mere R100m, when PSG Group bought into the un­listed com­pany for R50m. From lit­tle acorns mighty oaks may grow. Curro is now worth R20bn. I’m not sug­gest­ing PLG is the next Curro, but PLG does have an in­ter­est­ing and af­ford­able low-cost offering that seems scal­able, and plans to have 13 cam­puses with 9,000 learn­ers, rev­enue of R390m and net profit of R95m by 2020. CEO and founder An­drew McLach­lan says PLG could prob­a­bly grow faster than the forecast rate.

What’s dif­fer­ent about PLG’s school model is that its fees are slightly lower than its listed sec­tor com­peti­tors — be­tween R18,000 and R54,000/year. It also opens its schools faster and more cheaply than its com­peti­tors, as it does not build turnkey sites. In­stead, its buys sites in res­i­den­tial ar­eas in and around Gaut­eng which have had “other uses”. Its schools were for­merly ho­tels, con­fer­ence cen­tres and wed­ding venues.

Don’t ex­pect prof­its from PLG im­me­di­ately; it will have to grow, gain class­room crit­i­cal mass and ex­pand its school net­work. It took sev­eral years for Curro to turn a fair profit.

If I were an in­vestor who’d missed out on the early gains in Curro, I would per­haps take a small bite at PLG. It is a small player in a fast-grow­ing mar­ket. It has mod­est am­bi­tions to ex­pand into other regions. For the pa­tient it could be an in­ter­est­ing sec­tor play, al­beit riskier than the big­ger boys. That it might get bought out adds an in­ter­est­ing di­men­sion.

If I were an ADvTech or Curro share­holder, tak­ing a small per­cent­age of my gains and in­vest­ing it in PLG may not seem like a bad idea.

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