BUY, HOLD, SELL
Amid reports of trouble in government schools, the private-education sector is on a steep (l)earning curve. But which counter has the most merit?
STADIO Share price: 590c JSE code: SDO
BUY THIS TERTIARY education venture has made a fine start by acquiring several niche brands — Milpark, Southern Business School, Afda and Lisof — to complement its Embury brand.
While delivering low-cost, high-quality private tertiary education will arguably be more challenging than rolling out a schools network, CEO Chris van der Merwe (who founded and built up private-school business Curro) is relishing the challenge.
He reckons Stadio is on course for R41m in after-tax profits for the 2018 financial year, and that the goal of 56,000 students by 2026 will be achieved. With this many students on hand, Stadio will have an after-tax profit potential of R500m.
The X-factor is what Stadio can bring to the table in the form of acquisitions. IM understands that sizeable opportunities are under consideration. Smart expansion of faculties — including “sweet spots” like engineering and medicine — should also ensure a compelling offering at what Stadio envisages as a “multiversity”.
Van der Merwe delivered much more than what was initially promised at Curro, and IM believes he will do the same at Stadio. Stadio’s shares have drifted away from a high of close to 900c — perhaps on expectations that acquisition activity might necessitate a rights issue. It could be a smart time to enrol.
ADVTECH Share price: R15.70 JSE code: ADH
HOLD THIS IS A well-established private-education conglomerate that operates in the schools and tertiary spaces as well as extending into the training sector via its sizeable recruitment division.
Recent pressure on enrolment numbers in the high-end private schools segment — where flagship brands Crawford College and Trinity House are major players — was offset by a more vibrant showing in the well-diversified tertiary operations.
The group, ever since rival Curro’s aborted takeover bid, has been growthfocused. Though AdvTech has adopted a measured approach to expansion, there is scope for roping in additional specialist tertiary brands and building a schools footprint in selected African countries.
In terms of market rating, AdvTech trades at a fairly demanding earnings multiple — but this rating must be viewed against the group’s ability to produce solid earnings growth and pay regular dividends. Cash conversion is excellent and margins have been well-maintained. Efforts to increase efficiencies in the schools division should also perhaps not be underestimated in term of positioning a “leaner and meaner” AdvTech for a profit dash when the economy is not pinching consumers.
Meanwhile, AdvTech’s efforts to roll out a more affordable private-school offering should be watched closely.
CURRO Share price: R31.95 JSE code: COH
SELL GLANCING OVER CURRO’S latest financial report, an investor would battle to find flaws. Revenue growth is sprightly, margins improving, cash flow increasing and bottom-line growth rolling along.
Enrolments (aside from a setback at lower-fee venture Meridian) look reassuring, and the development pipeline, backed up with smart land banking endeavours, remains vibrant.
So why has Curro’s share price — following the unbundling and separate listing of tertiary venture Stadio — shed more than 35% over the past 12 months?
There may finally be a realisation that Curro — as great as its business model is — cannot generate the profits to justify its shares trading on a trailing earnings multiple of more than 65 times and a forward multiple of 50 times. The market rating is double the rating of rival AdvTech, which — though likely to grow at a slower pace — is a lower-risk proposition in terms of expansion execution. Assuming a “more modest” forward earnings multiple of 30 times is more acceptable to the market, Curro’s share price could dribble downwards for the next few months.
It’s not easy to chalk up a SELL on an exciting high-growth share like Curro — but let’s just say there may be a better time to buy the stock later this year.