THE COMING BOOM IN PRIVATE EDUCATION
The growing black middle class and concomitant disenchantment with government schools is driving the demand for private education. Curro and several other educational institutions are riding the wave of demand.
there are 12.8m learners in South Africa, of which less than 5% are in private schools. Research by JP Morgan reckons up to 9% of SA’s population can afford private school education, suggesting there’s room for another 424 schools capable of accommodating 1 500 learners each. These numbers exclude A- and O-level students.
That’s a compelling growth story, which propelled JSE-listed Curro to a 33% increase in earnings before interest, tax, depreciation and amortisation (ebitda) for the year to December 2016. What has grabbed the attention of investors is the ebitda margin of 27% for Curro’s owndeveloped schools (as opposed to acquired schools), up from 23% the previous year. The ultimate target is to lift this margin to 40%. Headline earnings per share shot up 55% to 43.9c (2015: 28.3c).
This has been a stunning investment for PSG, which acquired its 50% in Curro in 2009 when the market cap was around R100m. It currently sits at around R19.3bn.
Curro’s number of learners jumped 14% in 2016 to 47 589 in 2016. The group now comprises 115 schools and 54 campuses.
There are about 140 higher education institutions in SA, of which 113 are private, attending to the educational needs of roughly 1.1m students. Nearly 1m of these are educated in public institutions and 120 000 in private colleges.
Roughly 160 000 students enrol each year at SA’s 26 universities, according to a 2015 report by the department of higher education. If SA catches up with other developing countries, where close to a quarter of students are in private secondary colleges and 13.6% are in private primary education, several million more learners will find their way into private education in the coming years. These are figures that cannot be ignored. Private education is a growth sector, and will remain so for the foreseeable future.
Filling the gap
What’s driving this is the growth of the black middle class and a concomitant disenchantment with public sector schooling. Private colleges offer greater diversity in terms of curricula and extramural activities, and with
Curro’s pass rate of 99%, graduates stand a better chance of entering university.
Now Curro is planning to expand its tertiary education business, using its teacher training institution, Embury, as its launch platform. Later this year, Embury will relocate to a new facility in Durban that can accommodate 2 600 students, more than doubling its existing capacity of 1 000. It will also add campuses in Midrand and Pretoria, which will be ready for full intake in 2018. It is also concluding a transaction with Ba-Isago University in Botswana to offer higher education in that country.
“We believe that the tertiary-education component can reach more than 100 000 students over the long term,” says Curro CEO Chris van der Merwe, who explains that the group plans to spin off its tertiary education business. Van der Merwe will head up the new tertiary level basis, handing over the reins at Curro to current chief operating officer, Andries Greyling, though he will remain on the Curro board and stay on as a strategic adviser.
“Critical to Curro’s success has been its ability to offer quality education at an affordable price, and this will remain central to our strategy going forward,” says Van der Merwe. “Our focus will remain on SA, though we see attractive opportunities in Botswana and Namibia. But if you look at SA, some 50 000 post-matric students are unable to enter universities in this country because we do not have the capacity. We see this as an opportunity, and our primary responsibility is to build capacity in this country.”
In addition to this, Curro plans to expand capacity at its existing base of 54 campuses, augmented by seven new colleges and one or two acquisitions a year.
It has been speculated that the #FeesMustFall campaign, which hit campuses across the country in December 2015 and continued throughout 2016, would impact enrolments at public universities in future as many parents balk at doling out R40 000 or even R80 000 a year to send children into this battlefield. There is also a fear that the country will lose some of its better educators due to the disruptions on campuses.
Some private educators see this as an opportunity to wrest business away from an increasingly dysfunctional public education sector. “There is definitely an opportunity for private education to fill a gap in the system,” says Alan Murray, joint managing director of the Guarantee Trust Institute of Business, which over the last decade has graduated more than 10 000 learners through its skills-readiness programmes in the accounting, banking and insurance sectors. Over 90% of its graduates have
Private education is a growth sector, and will remain so for the foreseeable future.
been placed in jobs. It has now expanded its curriculum to offer a national certificate in banking, a diploma in technical financial accounting, and certificates in office management and financial advisory and intermediary services.
“There is no doubt that the #FeesMustFall campaign has hurt confidence in tertiary institutions run by the public sector, but the opportunities for private colleges is broader than that. Traditional universities are academically focused, but graduates are ill-prepared for the workplace because they lack the practical application and softer skills that employers are looking for, such as office etiquette and business ethics. A qualification is not a skill, and what companies want are skills.
Says Van der Merwe: “Regardless of #FeesMustFall, there is a shortage of supply in terms of places at government universities. Curro saw the gap in the market four years ago and started training educators through our Embury subsidiary. Initially only primary school educators were trained, but the need for training high-school educators grew.”
However, an institution must offer degree courses as well to train high-school educators, and that is why Embury started developing appropriate degree courses for accreditation by the Council on Higher Education, he explains.
“Some have already been submitted to the Council on Higher Education for accreditation, while others are still in the conceptualisation or development phases. It can take up to 24 months to have a degree accredited by the Council on Higher Education.”
The disruption in public sector education is likely to benefit private universities, which tailor academic programmes to the demands of the workplace.
Keeping quality education affordable is another challenge, as highlighted by the Centre for Development and Enterprise in a report entitled Investing in Potential: The Financial Viability of Low-Fee Private Schools in South Africa. The study found that all low-fee schools are engaged in an endless balancing act between keeping fees low to allow access to the poor, and providing quality teaching and learning for high learner achievement. The demand for quality education at a reasonable price is substantial and growing.
It’s clear that the future of education at all levels in SA will fall increasingly to the private sector, conforming with a worldwide trend that is steadily eating into governments’ control of education.
The demand for quality education at a reasonable price is substantial and growing. The trick is to maintain quality while keeping fees affordable.
Alan Murray Joint MD of Guarantee Trust Institute of Business
Chris van der Merwe CEO of Curro
Students protest in 2015 at the Parliament precinct in Cape Town after they forced their way through the gates.