Listed educational group ADvTech put out a commendable trading statement for the six months to the end of June 2021. The group – which owns Crawford International, Varsity College and Rosebank College among others – sees all divisions delivering an increase in operating profit.
Perhaps more importantly, if one-offs are excluded, ADvTech’s profits are expected to be between 28% and 33% higher than the same period in 2020, or between 53.5cps (cents per share) and 55.6cps.
These earnings stand up well when compared to the group’s first half of 2019, when equivalently normalised earnings came in at 42.5cps, thus seeing the group generating ‘clean’ growth of 28% versus a pre-Covid base (the pandemic and associated lockdowns have created messy base effects, thus I find myself comparing everything against 2019 equivalents).
A defendable approach to investing is to seek out businesses that fill the gaps left by poor public sector services.
From private healthcare services to private security-related products, these businesses often target large total addressable markets that can be fairly inelastic and often quite profitable.
Education – both primary and tertiary – is one such market and ADvTech has done well building a substantial group here, as have Curro and Stadio.
All these groups have their eccentricities:
- ADvTech holds a portfolio that includes both mature schools and tertiary offerings while having a strong distance-learning platform;
- Curro is a pure schooling play – lower-end fees and offering than ADvTech’s positioning – and many of its schools remain with a lot of excess capacity to be able to absorb future student growth; and
- Finally, Stadio, originally spun out of Curro, is a pure tertiary play but at an early stage with a lot more building, ramping-up and (hopefully) delivering on promises to come.
While Stadio has not yet updated the market with its half-year results (I expect this shortly), Curro has done so and we can compare theirs against what ADvTech put out.
Curro’s last 18 months have been understandably volatile albeit student numbers are up 7% year on year and the group expects its 2021 first-half profits per share to roughly halve. Per share measures of profits use the number of issued shares, and Curro raised R1.5 billion in September 2020 by issuing new shares that now dilute these results by a whopping 42%.
Roll this back to an implied mid-range headline earnings (before dilution) though, and Curro looks to be about doubling its 2020 first-half headline earnings of R56 million to around R116 million (unfortunately, and this is why I do these 2019 comparisons, Curro is actually down 43% against its 2019 first-half headline earnings of R206 million!).
Circling back to ADvTech, if we do the same here, the group’s mid-range implied 2021 first-half headline earnings came in at around R301 million or 39% up year on year against the comparable prior period. Likewise, the group is up 29% against its first half of 2019’s headline numbers.
Like I said, a (very) commendable result.
In closing, education is a great space to be in, though that fact hardly guarantees a successful investment here (just ask the Pembury shareholders).
Furthermore, despite arguments for its maturity, ADvTech has managed to navigate the pandemic and lockdown environment without material dilution to its shareholders and growing profits against even the pre-Covid base. All in all, this group and its latest update certain highlights the underlying quality inherent here.
Keith McLachlan is investment officer at Integral Asset Management.