Boom for private schools
Curro profits keep soaring and defy earlier fears of a slump
INVESTORS who are putting their cash into private schools and betting against poor quality government education continue to reap rich rewards.
Low-cost private school operator Curro, which launched in 1998 but is now in the stable of Jannie Mouton’s PSG Group, released impressive half-year results this week. Contrary to expectations, its growth has not faltered.
A rival of ADvTECH, Curro has seen its share price soar 229% since it listed on the JSE in 2011. This meant that Curro’s stock became very expensive, driving the shares up to a priceto-earnings ratio of 162 — far more expensive than the JSE All Share’s ratio of 17.
This led to concerns that Curro might not be able to keep growing at such a frenetic pace to justify this rating and might be destined for a crash.
But the announcement this week by Curro CEO Chris van der Merwe that the school operator’s after-tax profits had vaulted 87% to R27.5-million for the half-year will have eased those concerns.
Shares in the company, which had dropped in recent weeks, spiked 5.3% on the day.
Anthony Clark, an analyst with Vunani Private Clients and one of Curro’s staunchest advocates, said after the results: “You’d sell your kidneys to buy shares right now.”
Clark said that, if anything, Curro had “sharply underestimated the size of private education in this country”.
“What they’ve seen by investigating the local market is the collapse of the model C state school system. [Curro] could easily, if they wanted to, put down 30 new schools next year. They have the expertise, skills and nous to do it,” he said.
Curro’s official plan is to extend its 32 schools to 80 by 2020. But this seems modest and it would not be a stretch for it to target 100 schools by then, considering it is building another 10 schools right now. The fees for pupils range from R1 000 to R6 200 a month.
Clark’s view is that Curro’s shares could hit R32 a share by the end of this year — more than 20% higher than its current R26.47.
ADvTECH has not had the same sort of success. In March, it posted a 12% rise in full-year earnings, but its stock is much cheaper than Curro, trading on a price-to-earnings ratio of 20.4.
Clark’s explanation is that ADvTECH was “too conservative and missed the boat” by not
Its after-tax profits had vaulted 87% to R27.5-million for the half-year
building new schools despite the rampant demand for quality, low-cost private education.
But, he said, “unless you truly believe the state will wake up and make education substantially better than it is now, there will always be a place for Curro and ADvTECH”.
Rigardt Maartens, a portfolio manager at PSG Securities, said: “I don’t think consumer wealth has grown all that much, but I think parents know that it is important to put their children in affordable and decent schools and Curro gives them all that.”
South Africa spends more per capita on education than any other African country, but its public schools are frequently criticised for poor standards of teaching and infrastructure, leading to low exam pass rates.
A poll released this week by One, the anti-poverty campaign co-founded by rock stars Bono and Bob Geldof, found that education and jobs were key areas of concern to respondents in South Africa. —