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.
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.
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.