SIMON BROWN: I’m chatting now with Nesan Nair, a portfolio manager at Sasfin Securities. Nesan, good morning. I appreciate your time. Two of our education stocks on the JSE came out yesterday – Stadio’s (annual) results, and ADvTECH update (for the year ended December) – not a bad set of numbers for either. A tough period, obviously, (with) lockdown. I think maybe their tertiary education helped more than anything else. Your take on a sector I’ve always kind of liked as defensive? Although my defensive portfolio never took into account a potential pandemic.
NESAN NAIR: Good morning, Simon. Very good results on both. Results on Stadio and an update there from ADvTECH, both operating in the tertiary education sector. It was a little bit of a surprise to me. I would have thought, certainly with the pressure on consumers, those (companies) – particularly ADvTECH – may have come under a little bit of pressure. And of course, with the fact that we had lockdown, as you mentioned, kids weren’t going to school but clearly, the impact has been minimised. In fact, Stadio reported an increase in the numbers of students.
I just wonder what’s going on with tertiary education right now. We all know about these protests that are [going on]. Parents generally are looking at this and saying, I might as well go for one of these private-education colleges of distance learning, rather than sending my kid to one of the traditional universities. That might be having an impact on it, but certainly a very good result.
SIMON BROWN: Stadio is only tertiary, ADvTECH a blend, Curro looking a bit tougher – and that’s school-only – and there’ve been reports of losing due to emigration, losing kids owing just to fees. Certainly, that seems to be the tougher part of the sector right now.
NESAN NAIR: Yes. Primary and secondary education, I think, is still a bit of a challenge largely because the demographic there is the middle- to upper-income South African. There’s lots of emigration taking place as well, which is impacting those numbers.
The difference between (primary and secondary education) and the tertiary education guys is I think there is a shortage of tertiary facilities and the skills available in South Africa. And I suppose there’s this big move towards digital because you can see it vertically.
I mean, you can …. fill a digital class with a lot more learners than you can physical ones.
It’s an interesting dynamic, but I think it’s largely because of the lack of investment on the tertiary side, by the government mainly, that’s given rise to an opportunity for these players.
Mr Price buying Yuppiechef
SIMON BROWN: I like your point around the parents there. They want the kids to get an education, so they send them off to a private tertiary just to avoid the protests we’ve seen.
What’s probably a smallish deal, about R500 million – small for Mr Price, not so small for Yuppiechef – is Mr Price buying Yuppiechef. If I were the Yuppiechef founder, I would take my share of R500 million. For Mr Price, I think it works fairly well. It gives it a new market, a higher-margin market in a higher LSM, in which it doesn’t typically operate – mostly online, although some stores as well. A nice little deal for Mr Price.
NESAN NAIR: I thought so, Simon. What was interesting was that Mr Price, when it was announced, almost played it down like this was small, only 1% of the market cap; but the share price went up 4%. I think if you could do a deal like that which costs you 1% of the market cap and gives you 3% more because of the share price movement, that would be wonderful.
But I think the theme of moving to this omnichannel that’s focused largely on online sales is what the market wants to hear.
South African retailers, apart from some in 2020, didn’t really take online too seriously. And then when we got hit with lockdown everybody was scrambling for it. I think Shoprite [Checkers] did quite well with [Sixty60] that they added. They did quite a few deals quite early. Woolworths improved their game substantially as well.
But Mr Price is now looking, rightly so. They haven’t had a good online offering, but they’re looking to make a bigger, more impactful investment online because clearly, that is the way to go for the future. I think the market’s looking at that favourably and probably giving Mr Price a lot of credit on that basis.
SIMON BROWN: A quick last question. Sun International results from yesterday (March 15, 2021) for the year to end December. We understand (it was) a horror year for them. Is there a reopening trade here? I’ve seen City Lodge moving quite strongly. Sun International moved earlier in the year; it’s been sideways the last month or so. Is there a trade here? Do we perhaps wait because the opening is maybe going to be late this year or only early next?
NESAN NAIR: It was a tearful set of results, a massive loss, income halved – that’s gross income halved. So you can imagine the impact on profitability. The question is, are they going to need another rights issue? That’s for me the big question and it’s very hard to time this.
We thought Sasol was going to need another rights issue and R25/share. I don’t think that things are just cast in stone; I think you’ve got to tread very carefully. The trade I would do is I would probably buy about 30% of my exposure right now because this is going to improve. I mean, without a doubt Sun International is going to be around. I can’t see them closing shop. But, with that, going in boots and all right now? Probably not.
SIMON BROWN: Yes, take a small position. That might be the way to play it. I like that idea. Nesan Nair, portfolio manager at Sasfin Securities, I appreciate your early morning time, sir.