Targeting those who can pay for education

AdvTech is an education and human resource group with a footprint across SA and in some Southern African countries.

It has a schools division, which contributes about 45% to the group’s total revenue, a tertiary division (about 39%) and a resourcing division (about 16%).

AdvTech is a competitor to Curro in the private school space, though through its various brands of schools it educates just over 27,000 pupils, making it about half the size of Curro. But it has two divisions that Curro does not have: the tertiary education and recruitment businesses.

Brands, or schools, owned by AdvTech include Crawford Schools, which has 20 campuses in Gauteng and KwaZulu-Natal; Trinity House, with 13 campuses in Gauteng and KwaZulu-Natal; Centurus Colleges, with nine campuses in Gauteng and North West; Maragon Schools, with nine campuses in Gauteng; and Junior Colleges, with seven campuses in Gauteng. There are a few more, but the ones listed here have the largest footprint of the various brands. Instead of grouping all the brands together under one banner, AdvTech is allowing each to build and maintain its own reputation and standards.

Things get a little bigger for AdvTech in the tertiary space. It has about 36,000 pupils at its various campuses and about 29,000 pupils accommodated via distance learning.

Brands in the tertiary division include Varsity College (eight campuses), Rosebank College (seven campuses), Vega (four), Capsicum Culinary Studio ( six), and The University of Africa in Zambia and Oxbridge Academy, which offer distance learning.

When these two divisions are combined, AdvTech provides education to more than 92,000 pupils, making it the most significant private education business in SA, particularly in the tertiary education space.

Within the resourcing division there are several recruit- ment and human resource brands that focus on recruiting high-quality candidates on behalf of hiring companies. Some of the brands in this division include Network Recruitment, focusing on engineering IT and finance recruitment; Communicate Recruitment, with focuses on engineering, IT and finance as well as supply chain and freight industries; and CA Financial Appointments, which focuses on appointments in accounting. Again, there are several brands competing against each other.

In the most recently reported financial results, AdvTech reported a 13% increase in revenue (from R2bn to R2.26bn) for the six months ended June 2018, of which about 11% was from outside SA (rest of Africa operations).

The bad news is that basic earnings per share fell by 10% for the period, from 38.5c to 34.8c per share, which can be explained by a one-off impairment of intangible assets and an investment in proprietary technology systems made during the period, which had a negative impact on earnings, as

well as a 9% contraction in revenues from the resourcing division.

From a share price perspective, the stock has been a relative underperformer when compared to the top 40 index since mid-2017. This is probably attributable to the same factors driving Curro to be an underperformer over the same period. These could include an overenthusiastic investment community that expects higher earnings growth and is continuously disappointed, as well as difficult overall economic conditions within SA.

Once again, we have a situation where the private sector is providing a service usually rendered by governments, and a public that is rapidly increasing its consumption of that service. Consumers who can afford private education are making use of it. This eases the pressure on public universities and schools, and creates opportunities for investors to profit from private education. Petri Redelinghuys