It looks like the tertiary education sector is fast-becoming a new growth vector if the bold plans of private education specialist ADvTECH are anything to go by.
ADvTECH, which owns premium private schools such as Trinity House and Crawford College, staked another claim on the niche tertiary education space by acquiring 100% of Capsicum Culinary Studio, a cooking school and a 51% stake in Oxbridge Academy, a long-distance education institution.
CEO Roy Douglas on Monday suggested that this is a sector still fertile with growth. “We value this as an important business,” he said.
Underscoring the opportunities in this space, Douglas said that 60% of students in South Africa are studying at “face-to-face intuitions” and 40% are studying through long-distance institutions.
“Although we have made progress in distance education through our existing brands, we see this [Oxbridge Academy] as another avenue for growth in this space,” Douglas told Moneyweb.
Tertiary education is a market that ADvTECH is already playing in with institutions such as Varsity College, Rosebank College, Vega (an advertising and marketing institution) and The Business School, in its stable.
AlphaWealth portfolio manager Keith McLachlan said in the next five to ten years ADvTECH is poised for growth as the company can easily add scale through Oxbridge Academy.
The company posted a 28% growth in revenue to R1.6 billion for the six months to June 30 2016, and growth of 33% on its trading operating profit. Its headline earnings per share were up 48% during the period. Enrolments across its schools and tertiary institutions were up by 13% to 54 200 students.
ADvTECH’s private schools division is still the most profitable compared with the tertiary and resourcing (recruitment) division, as it contributes 50% to group revenue. The tertiary and resourcing divisions contributed 36% and 14% to revenue respectively. Schools have higher operating margins of 20% compared with tertiary (17%) and resourcing (4%).
Douglas said ADvTECH has a small representation when looking at SA’s body of tertiary students, which numbers about 950 000 individuals. The recent nationwide #feesmustfall student protests, which cast the spotlight on high university tuition and academic exclusion, might be good news for the company.
Douglas added that colleges are starting to be popular for their experience and applied based learning as an alternative to the academic research learning offered at universities. “But both universities and colleagues have a role to play.”
One of the counters sniffing in the tertiary education space is ADvTECH’s rival Curro Holdings. Curro is controlled by Jannie Mouton’s PSG and owns the Embury Institute for Teacher Education, which is a teacher training operation, with a campus in KwaZulu-Natal (Durban). It is currently constructing a campus in Waterfall Estate in Midrand and has bought a building in Pretoria.
Curro has opted to focus on the rapid expansion of its private schools in recent years but the company’s CEO Chris van der Merwe recently said that it will make measured moves into tertiary education. Curro is considering offering degrees that are beyond teacher training.
Another area of focus for ADvTECH will be growing its tertiary education presence throughout the African continent. The acquisition of a 4% stake in ADvTECH in July by the International Finance Corporation, a member of the World Bank, was largely seen by market watchers as a connection to expand further into the continent.
Supporting its growth ambitions is a rolling R3 billion capital expenditure programme (capex) on greenfield developments, expansion of existing schools and acquisitions. It has already spent R500 million of its capex. With this much afoot, management feel confident agreeing to a stretch target of 100 cents normalised earnings per share by 2018 provided there is no deterioration in the economic environment.
Said McLachlan: “purely looking at organic growth, management should be able to reach 90 cents. To achieve 100 cents, ADvTECH has to be acquisitive.”
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