Opportunity in SA’s failing school system

Curro Holdings, established in 1998, is the leading for-profit independent school provider in Southern Africa. It’s a rather substantial business, with 58 campuses, 145 schools, more than 52,000 students and more than 5,800 staff members.

Curro Holdings recently unbundled Stadio Holdings, a group of tertiary education institutions which service more than 30,000 students. The unbundling will ensure that Curro remains focused on its core directive of providing world-class education to children from pre-school to matric.

Curro schools apply more modern teaching and learning methodology as well as active involvement of technology in the classroom. It has five models of schools.

Curro Castles are nurseries that are either free-standing or part of a larger school campus. The free-standing Castles accommodate children from the age of three months to Grade R, while Castles that form part of a larger school campus accommodate children from three months to five years old. Each of these nursery schools can accommodate up to 300 children.

Curro Schools accommodate children from three months old to Grade 12. While school campuses vary in size and thus the number of pupils that can be accommodated on each campus varies, class sizes are limited to 25 pupils. They take the Independent Examinations Board (IEB) exams in matric.

Curro Select Schools are schools that have been acquired by Curro but have retained their original identities. Select Schools accommodate children from three months to Grade 12, and IEB exams are written.

Curro Academy Schools is a cost-sensitive model. These schools accommodate children from age five years (Grade RR) to Grade 12 and in some cases include a Curro Castle. Class sizes are a maximum of 35 pupils and they write the national senior certificate exams in matric. Pupils are taught the same curriculum as at other Curro schools, but there are fewer extramural facilities, which brings down tuition fees.

Meridian Schools are like Curro Academy Schools but form part of a joint venture with Old Mutual.

These school offerings are popular in SA as is evidenced by the group’s rapid growth since its founding. Curro is also starting to expand into other Southern African countries with recent school openings in Namibia and Botswana.

In a more macro context, there are more than 25,000 schools in SA with almost 13million pupils, of which about 4.5% (560,000) are accommodated in private schools. Global trends indicate that private schooling is moving towards making up about 20% of the total numbers of schools. This means that there is huge potential for many more private schools to be developed in SA, and with Curro at the forefront, there could be huge growth in the stock over the coming decades.

In its most recently reported financial results, for the year to end-December, Curro’s headline earnings grew 23% from R201 to R248m, while revenue grew 19% from R2m to R2.5m. Headline EPS grew 23%.

There was a decision to recapitalise the Meridian venture with R253m to redeem expensive interest-bearing debt and improve its profitability.

Curro’s share price responded positively to the results on the day of release and hopefully that positive momentum can drive the share price higher.

The share price has not had a great time over recent years as it has been a relative underperformer compared to the top 40 index since the beginning of 2017, taking it down some 58% from its late-2015 highs of about R60. Earnings have been lighter than what the market has been expecting for some time, though the aggressive expansion and growth in pupil numbers have not ceased.

An opportunity for Curro is the falling quality of public school education and the growing need in SA for quality private education. This may prove to be a tailwind for Curro over the longer term. Petri Redelinghuys