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A 10-month loss for Pembury

More campuses in sight; positive outlook.

Education and retirement home group, Pembury Lifestyle, declared a loss of 4.61 cents per share for the ten months ended December 31 2016. It also saw a headline loss of 4.48 cents per share for the ten-month period – down 63%.
 
Management plans to reduce costs

Operating costs were up 112% to R42 million, due mainly to the group’s expansion. Pembury says costs are monitored closely and management is investing in an aggressive marketing campaign to boost pupil numbers.

“In the period under review, the group provided for doubtful debts in the amount of R3 268 878 (Feb 2016: R951 843), the majority of which relates to PLG Ballito, which was closed during the period under review.

Management has implemented strict controls over the debtors and has started with a debtor recovery plan, which includes hiring debt recovery agents for older debt, while a stringent policy on attendance for short term defaulters are enforced. New procedures have been implemented for new pupils, with debit orders being put in place, the company says.

Good news

Pembury listed its schools business, PLG Schools, on the JSE’s AltX exchange on March 31. According to the company, the listing has improved the prospects and cash flow position and also facilitated the acquisition of a number of properties

Ahead of the listing Pembury Lifestyle group CEO Andrew McLachlan said: “Our vision is to offer a quality, affordable private education to all South African children built on a solid Christian Foundation.”

PLG Schools intends expanding into tertiary education with PLG Tech Colleges. The first step in this process was listing PLG Schools, which included the underlying properties for each school site. 

“This … positions us for future growth and structures the company appropriately for the acquisition of additional properties for the roll out of school campuses,” said McLachlan in November. 

Read: New schools listing headed for AltX

PLG Schools aims to grow from seven to 19 campuses and from 19 to 55 schools by 2022. The company expects to open three more campuses in January 2018.

Properties have already been bought for two new campuses: PLG Greenhills Academy in Randfontein and PLG Carlswald Academy in Midrand.

“The offer ahead of listing resulted in the issue of 140 million shares at R1 per share, including the capitalisation of the loan. This results in the company having a strong balance sheet position subsequent to year end.”

Pembury has about 1 900 new shareholders, mainly private clients and private client wealth managers.

The number of pupils increased 64%, from 1 100 to 1 809 at the beginning of 2017. It now has 1 900 learners and plans to have 8 800 by 2020.

During 2016, the company changed its financial year end from February to December. This is its first year of operations.

Revenue grew 148% over the period to R31.8 million, compared with the first year of operations ended February 29 2016.

Pembury also moved from a net liability of 2.75 cents per share to a net asset value of 8.42 cents per share over the period.

Outlook

The group’s directors believe its growth prospects are good, supported by the boost in pupil numbers this year. “… at least four of the seven campuses (Hartbeespoort, Mellow Oaks, Springs and Allens View) [are] through, or expected to go through, the ‘J-Curve’ during 2017.”

“The cash flow forecast indicates that the schools will have positive cash flows in the next two years based on the current occupancy levels and expected growth in pupil numbers in 2018.

“The directors have satisfied themselves that the group is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements.”

Over the ten-month period, PLG Hartbeespoort and PLG Mellow Oaks seem to be already breaking even or profitable at an Ebitda level for the second period under review. PLG Willow View is showing a positive Ebitda for the first time.

“Three new campuses were opened in January 2017 and the number of new student registrations has already met management’s expectations as included in their profit and cash flow forecasts,” the company says. “Of these three new campuses, PLG Allens View Academy and PLG Springs Academy are expected to break-even or show a small profit at an Ebitda level due to the low operating costs.

“The business is forecast from its pre-listing statement to break-even in 2018/2019 when revenue is projected at R135.6 million and a profit before tax of R17.9 million (Pembury prospectus data) and Heps of 3.67cps.”

In March, after the listing, Vunani analyst Anthony Clark said: “…The education sector remains a sector I like a great deal. Pembury has a novel, small niche. If its makes its PLS forecasts it has a bright future, or perhaps it may just be snapped up by a company that has the capital to fully develop the story. Either way, given the risk-reward scenario, Pembury is a counter I was prepared to back.”

Dividend 

Pembury shareholders may have to be patient. The group hasn’t historically declared interim or final dividends. However, from year-end December 31 2018, “the board will consider a formal dividend pay-out policy of at least 10% of headline earnings of the consolidated group of companies”.

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