Financial Mail - Investors Monthly - - Opening Bell - Marc Hasenfuss

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 …

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