Curro Holdings intends to list Stadio, it’s tertiary unit, on the JSE in September.
For the six months ended June 30, Stadio’s revenue increased 26% to R24 million but earnings before interest, taxes, depreciation and amortisation (Ebitda) fell 33% to R6 million and headline earnings fell to a loss of R3 million. “The expansion costs have been substantial and Stadio Holdings’ Ebitda has been affected by corporate costs, incurred in establishing and operating the new head office component required for its pending separation,” explained Andries Greyling, chief executive of Curro.
Stadio also bought stakes in film school AFDA and Southern Business School during the interim period, bringing its total brands including Embury and CA Connect to four. Curro announced that it would unbundle the unit in February but has yet to release a pre-listing statement.
But the prospect that shareholders and those that missed out buying into Curro at a bargain may have “a second bite at the cherry”, via Stadio, kept the group’s share price in check, said Anthony Clark, a small- and medium-cap market analyst at Vunani Securities. “If Stadio were not to be unbundled, market reaction to these results would, I believe, be a whole lot different. With a -2.4% fall, Curro has gotten off lightly and should be thankful,” he said at around noon. Shares in Curro eventually closed 5.03% lower at R41.50 per share.
Vestact’s Bright Khumalo said the stock came under pressure due to a combination of high expectations, a result of its high P/E ratio of 99, and pressure on its lower-fee unit Meridian. “High expectations come with a high P/E and the moment you miss expectations, even by a fraction, the market punishes you.”
Meridian, exposed to the rural lower-fee market, reported a 4% increase in revenue to R136 million and a 275% jump in headline losses to R15 million, as learner numbers across its seven campuses fell by 6% to 9 602. “The surprise fall off in demand for even the lower- or low-end schooling alongside a 120% jump in overall group bad debts shows how much tougher domestic economic weakness really are if parents are skimping on paying school fees or as in the case of Meridian, simply removing their kids or not enrolling,” Clark said. Bad debts of R17.3 million at a group level are equivalent to 1.6% of revenue.
Khumalo added that the extent of Meridian’s falling learner numbers was unexpected but reflective of the mining sector’s poor performance as many of its schools are in mining towns. “As long as the mining sector is not doing well, it [Meridian] won’t do well. It operates in the mid-tier LSM market, where people are very sensitive to price. People are feeling the pinch and increasing [annual] fees by 10% is slowly squeezing them out.”
Curro Schools, the powerhouse of the group, continued to make good progress in the mid- to upper- end market. It reported a 28% increase in revenue to R915 million and a 64% increase in headline earnings to R128 million. It also managed to grow learner numbers by 20% to 36 288.
Curro has earmarked R600 million for the construction of seven schools and a further R900 million in expansion and capital investment replacement at existing schools. Khumalo said its plans to build schools in inner cities in development metros and hubs of economic activity, such as Johannesburg and Cape Town, should bode well for growth in enrollments.
At group level, Curro’s interim revenue rose 24% to just over R1 billion. Headline earnings increased 46% to R110 million, with headline earnings per share rising 22% to 26.9 cents.
“Management must detail what they intend to do to limit any further issues with Meridian and should hurry the listing and capital raise of Stadio to keep interest going in Curro. As ADvTECH’s recent trading update details, the former tortoise is now catching up with the hare, in terms of growth and potential… and its P/E rating is looking highly attractive compared to the sector’s titan,” Clark said.
ADvTECH, in a voluntary trading update for the six months to June 30, said shareholders could expect a 20% to 25% increase in normalised headline earnings per share to between 38.3 and 39.9 cents. It is currently trading at a P/E of 23.
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