School busi­ness still driv­ing growth

A com­bi­na­tion of ac­qui­si­tions, a wider range of cour­ses and a boost in stu­dent num­bers from the rest of the con­ti­nent is pay­ing off for Advtech.

Finweek English Edition - - MARKETPLACE -

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in the spe­cialised con­sumer ser­vices sec­tor on the JSE, the Advtech Group is one of the largest di­ver­si­fied ed­u­ca­tion and place­ment groups in South Africa.

The busi­ness op­er­ates un­der three pri­mary di­vi­sions, namely: schools, ter­tiary and re­sourc­ing, mak­ing up 53.4%, 38.5% and 8.1% of group rev­enue re­spec­tively (first half of 2015).

A look at the var­i­ous di­vi­sions

The school busi­ness re­alises an op­er­at­ing mar­gin of 19% and re­mains the largest contributor to group’s earn­ings. Advtech has in­creased stu­dent ca­pac­ity (largely through ac­qui­si­tion) by 75% from 2014 through to 2015, while still man­ag­ing to main­tain around 70% oc­cu­pancy.

Advtech’s aim is to fur­ther grow ca­pac­ity of ex­ist­ing sites by about 46% into the year 2020. The most re­cent devel­op­ments re­lat­ing to Advtech’s ac­cel­er­ated growth strat­egy is the ac­qui­si­tion of Sum­mit Col­lege for R82m. The deal ap­pears a good one as Sum­mit Col­lege has ex­ten­sive grounds, mea­sur­ing 42 hectares, which are zoned for ed­u­ca­tion. Part of this has been de­vel­oped into a school with a ca­pac­ity for 1 000 stu­dents and en­rol­ments of 590. The school of­fers board­ing on the prop­erty in the Kyalami area and caters for all phases from Grade 000 to Grade 12.

The ter­tiary di­vi­sion boasts a 51% in­crease in earn­ings be­fore in­ter­est and tax (EBIT) from the first half of 2014 to the first half of 2015. This di­vi­sion has also man­aged to im­prove op­er­at­ing mar­gins from 10% to 13% over the same com­par­a­tive pe­riod. The turn­around in this di­vi­sion has been driven by grow­ing par­tic­i­pa­tion from stu­dents in other African coun­tries as well as an in­creased range of cour­ses be­ing made avail­able.

The re­sourc­ing di­vi­sion has proven robust in a com­pet­i­tive mar­ket en­vi­ron­ment, with op­er­at­ing mar­gins hav­ing dou­bled from the first half of 2014 to the first half of 2015.

Gen­eral over­view

The group now has a mar­ket cap­i­tal­i­sa­tion of around R6bn, a re­turn on aver­age eq­uity in the re­gion of 18.5%, a his­tor­i­cal div­i­dend yield of 2% and trades on a price-to-earn­ings ra­tio (P/E) of 27 times. While a P/E of 27 might ap­pear a hefty pre­mium in an al­ready ex­pen­sive mar­ket (the JSE All Share In­dex has P/E of 23) the com­pany’s most re­cent set of in­terim re­sults shows the share is achiev­ing sig­nif­i­cant growth through both or­ganic and ac­quis­i­tive chan­nels hav­ing achieved a 33% in­crease in rev­enue, a 73% jump in op­er­at­ing profit and a 29% in­crease in profit af­ter tax.

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