UAE school group to list on JSE
If successful, Athena’s IPO will be one of the biggest capital raisings on the JSE in the past decade
ý Local investor appetite for private education stocks will be tested shortly, as Athena — a private schools business based in the United Arab Emirates (UAE) — tries to raise up to R4.6bn with a JSE listing.
The group, which hasn’t set a listing date yet, is aiming for a $225m IPO by issuing ordinary shares at between $1 (R14) and $6 a share. Another $110m will be targeted via a preference share placement.
If successful, this will be one of the biggest capital raisings on the JSE in the past decade. The full capital raising would represent about half of each of the market capitalisations of the JSE’s private education stalwarts — Curro and AdvTech.
CEO CN Radhakrishnan concedes that Athena hopes to tap the SA market’s familiarity and knowledge of private education stocks. In the past these stocks have attracted strong market ratings based on their defensive qualities — including strong cash flows, reliable annuity income and stout margins.
But the market’s enthusiasm for private education — which burnt brightly between 2012 and 2016 — has waned recently, with economic pressure, coupled with Covid disruptions, hampering profitability. The Curro and AdvTech schools segment (Crawford Colleges, Trinity House and Abbotts) has come under pressure in the past three years as parents battled to afford school fees.
While Curro and AdvTech still attract mainstream market interest, investors might also be wary of newer listings after the disastrous listing of Pembury’s private schools business in 2017.
However, operationally Athena is progressing smartly, notwithstanding Covid’s disruptive effects.
The group, founded in 2015 by well-known UAE banker VNP Raj, started with the acquisition of the Grammar School in Dubai. During the next five years Athena acquired a portfolio of nine schools (from kindergarten through to grade 12).
Radhakrishnan says Athena’s longer-term plans include building a school network outside the UAE — with India and Africa likely target markets.
He believes JSE investors will take an interests in the group’s expansion potential and dollarbased earnings.
Athena is 40% owned by Raj, with co-founder Hesham Al Qassim holding 60%. Radhakrishnan says more than 40% of the company’s equity will be on offer in the planned IPO.
Athena has still not issued a prospectus, as it awaits JSE approval for a listings application.
According to preliminary investment documentation, Athena is offering fixed income of between 4% and 5% a year on its secured preference shares, payable in dollars. The ordinary shares could carry a generous dividend, with Athena indicating that at least 50% of free cash generated will be paid out to shareholders in dollars.
At last count, Athena boasted about 12,000 pupils — significantly fewer than Curro’s 60,000-plus and AdvTech’s 34,000.
Athena points out that Covid resulted in a significant decrease in student numbers to 12,061 in September 2020. But it says this was a temporary drop, which is picking up with the vaccination drive in the UAE. The group believes this should result in the government relaxing the Covid restrictions and parents sending their children back to schools.
Athena expects the kindergarten and elementary-grade pupils to return to school during the financial 2021/2022 year, which will bring the total pupil number back to pre-Covid levels. Its forecast is 14,560 pupils.
While the numbers don’t stand up to either Curro’s or AdvTech’s school sizes, Athena is operating in
a niche market and its earnings before interest, tax, depreciation and amortisation margins are generally thicker.
Athena’s investment documentation shows earnings before corporate overheads growing from just under $15m in financial 2016 to $22.3m in the 2020 financial year. In that time the margin fattened from 25% to almost 39%.
The group is predicting earnings before corporate costs of nearly $38m in the 2022 financial year. This would see the margin extending out to 47%.
While the numbers do look enticing, an unfamiliarity with the UAE education market might make local investors aloof initially.
Large cities Dubai and Abu Dhabi are the country’s biggest private school markets and account for about half of pupils in private schools.
The private schools offer various international curriculums. The most favoured are British, American, International Baccalaureate and Indian. Canadian, French and German are also available.
Athena ascribes this largely to the strong presence in the UAE of expatriates, who account for about 80% of the total population. The group says the country’s internationalisation strategy for higher education has also led to the influx of several top global universities and well-reputed global schools and colleges in recent years.
Though there is an abundance of private schools in the UAE, Athena stresses its focus is on the local Emirati children. “The government schools are available to these children, but there is an increasing demand for schools that cater for the Emirate culture but follow an internationally accredited curriculum.”
Six of Athena’s nine schools follow the US curriculum and three the UK curriculum.
While the numbers do look enticing, an unfamiliarity with the UAE might make local investors initially remain aloof