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The phenomenal growth in private schooling in SA

The best example of which is Curro.

Curro just released its interim results for the half year to June 2019 and the figures tell a story of a company that has prospered at the expense of an overburdened public education system.

Not all public schools are terrible. Several rank among the best in terms of matric pass rates, and the better resourced public schools are able to match the academic achievements of the private sector. But Curro and other independent schools are clearly filling a gaping hole left by an overstretched and under-resourced public sector.

Figures from South African Market Insights show there are just short of 2 000 independent schools in SA with slightly more than 400 000 students. Put another way, about 8% of schools in SA are independent, accommodating 3% of the student population. The public sector has about 23 800 schools with 12.5 million students. This means the public sector is carrying a huge burden, with nearly three times as many students per teacher as in the private sector.

Read: Coding in SA schools: what needs to happen to make it work

Since 2014, Curro has grown its number of campuses from 31 to 68 and schools from 79 to 164. It has more than doubled the number of students to 57 173 over the same period, a compound growth rate of 16% a year. Not all of this growth has been from the building of new schools. It has embarked on a programme of acquiring existing schools, which can be bought at a fraction of their replacement value, and applying its proven formula of ‘add water and mix’ to get these schools to the desired rate of profitability.

Curro has ventured into poorer ‘township’ markets and appears to be making a success of this.

Its mix of schools caters for budgets from R1 900 a student per month to R10 000 a month at the top end. That is still well short of the nearly R300 000 a year you would pay to put your child through one of the top boarding schools, such as Hilton or Michaelhouse. Businesstech put together a useful series of tables to show what kind of value these top schools offer in terms of academic achievements.

Read: Curro to build more private schools in townships

One way to retain students within the Curro ecosystem up to Grade 12 is to build extra capacity in existing schools to accommodate increased student numbers at the higher grade levels. Student fall-out rates are also contained by making it financially softer on the parents and by placing students who relocate to other parts of the country in a different Curro school. The success of this strategy is evident in the drop in school leavers (excluding those who finish school at Grade 12) from 21.4% to 18% over the year to December 2018.

Investing in learner retention

Speaking yesterday at the half year results presentation, Curro CEO Andries Greyling said rather than lose students whose parents had run into financial difficulty, softer financial plans are being put in place to improve student retention. This has resulted in bad debts as a percentage of revenue increasing from 0.6% to 0.8% since 2016, but the group has been able to recover 80% of bad debts within five months of year end. Some 60% of bad debts written off are eventually recovered.

One concern is the sharp rise in debt since 2015: to R3.5 billion in 2019 from about R1.5 billion in 2015. Greyling says the group’s generous earnings margin and robust cash flows are comfortably able to service this debt. The cash flow statement shows a near doubling in finance costs to R109 million over the last six months, but this is easily covered by cash generated from operations, and the group intends maintaining an interest cover rate of about three times.

“If we look at the growth in interest, it is high, but would we do it again – yes,” said Greyling.

“The growth in our Ebitda [earning before interest, taxes, depreciation and amortisation] will easily cover this [higher interest expense].”

It was important to increase capex in schools to increase capacity at the higher grades and improve student retention through the school life cycle, added Greyling. The real earnings benefit will come as student numbers increase at the higher grades. Having expended the necessary capex to build capacity, Curro will then be able to grow revenue by building up its student numbers at the higher grades without significant increases in operating costs.

The key numbers are:

  • Group Ebitda increased by 21% from R342 million to R415 million
  • Schools’ Ebitda increased by 20% from R409 million to R491 million
  • Headline earnings per share increased by 44% from 34.8 cents to 50 cents
  • Learner numbers are up by an above-average 13% from 50 691 to 57 173
  • Revenue increased 19% to R1.48 billion
  • Operating expenses increased 19% to R1 billion.

Going forward, the group expects to build just five new schools in 2020 and increase its focus on building capacity at its existing schools.

Read: 37-year-old former school teacher is India’s newest billionaire

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The private health business also increased drastically over the years thanks to government mismanagement of the state system. Isn’t there a danger that government will want to eliminate private education along the line of NHI? People have right to get decent education not only decent health care. Maybe not the same way, but I can imagine a law requiring private schools student composition to reflect the population ratio, or a law requiring to accept a certain percentage non-paying kids. Then the percentage can be increased simply by ministerial decree every couple of years.

Strangely enough when i saw the heading: “The phenomenal growth in private schooling in SA” i asked myself the exact same question “how low will it take the anc to do the nhi-trick here (foreigners were welocomed uncontrolled into sa, anc just could not calculate the effect it would have on the demand for new schools / hospitals) – the problem in every case so far was: everything touched by the anc with their reform ideas and promises was one big failure.

yes, the heading could have read “The phenomenal growth in private medical care in SA”……Curo soon the ANCNationalizers will be coming for you.

Indoctrination is very much what socialism and communism do.
So control of schooling makes total sense.

No?

If you understand the national democratic revolution you will realise that the nationalisation of the school system is inevitable. The centralisation of school learner registrations in Gauteng is the first step towards that goal.

So too the interference in home schooling.

While I agree the government might well start talking about a national education fund along the lines of the NHI, that would actually be a good thing for the private school groups, just as the NHI is being publicly welcomed by the private hospital groups. Far from attempting to eliminate them, it plans to pay them — to see patients who can’t otherwise afford their services. The private sector is rightly very excited at the prospect.

Afraid you’re 100% correct. Government will force these schools into its own network to intercept the cash flow. This will be done to achieve their ultimate goal – which is equality of outcome. Not equality of opportunity, unfortunately.

Yes, indeed, I believe. Except for their own children’s education.
Same as proposed NHI: except for their own families’ health.

Informative, balanced, encouraging; just the kind of report I need early in the morning.

You got to love it that cabinet ministers and the like all send their children to Private Schools and use Private Medical care . No faith in their own departments…….. Enough said !

Agree but they run to Russia when they get poisoned…….

They poison each other. You know why.

The media always calls the anc the ruling party, this has given them the idea that they are the kings and we are the slaves.

This is why they do not Govern and don’t really care either.

So far we have seen the privatisation of the police, airlines, hospitals, train and rail network in the form of private trucks transporting, public parks.

The anc left wing preaches nationalisation but in the end the create privatisation.

All of this is really Good, me thinks that if the Goverment refuses to govern then business will.

Hopefully we will see more of this in the energy, sports and public finance sectors, or maybe even town’s and cities.

What people fail to realise is that many of these ‘private schools’ are simply overpriced scams. You are not getting any better attention for your child at many of these institutions than you would at a public school. Of course there are many private schools which are a cut above the rest but people should be extremely weary of these pop-up private schools which appear out of the blue and claim to give a higher standard of education.
All very well creating the impression of an elite sphere of education but if in reality that sphere is still a similar size to what it was a decade ago then plenty of people are getting ripped off and they don’t even know it.

then the same goes for medical aids and private hospitals……..still I rather book in at a private clinic then a public hospital.
Parents of private schools must have their children take independent evaluation tests to see if the pvt schools teaching are in line with the approved curriculum….not all of them are.

Really? Do you have any facts on that? Curro currently averages less than 18 students per teacher. With a goal of 28. Government schools? Mid 30s. Rising. Fast.

Bet you are also queuing at government hospitals right? Private ones are ‘overpriced scams’.

“extremely weary” – clearly you are a victim of public schooling.

The lies people tell themselves to excuse spending on a new bakkie rather than on the kids education.

The number of students per teacher do not have an affect on outcomes. In fact I can prove it to you. Go to any of the top 3 universities in the country and count the students per lecturer, 100, 200, 300?

Are you seriously dumb enough to equate a university with foundation phase teaching? Another publical schooling victim right here.

Hamster wheeling frantically to justify that bakkie. I am sure your kid is doing great in the class of 40. Just hope it never has a question or some special need. Brooom brrooom that bakkie is so shiny!

Top universities will also have one supervisor for postgrad students and tiny specialised classes. Have you ever been to one?

LER is a absolutely KEY factor. Google it sometime.

@Anything Actually I went to St John’s College. Which is academically speaking the most successful private all boys school in the country. My father has been in education for 45 years. I speak from the valuable experiences of many of his colleagues as well as himself.
Are you seriously dumb enough to think that all private schools are offering the same education? I pity you if that is the case.
More than half of these so called ‘private schools’ are offering a regurgitated form of molly coddling, which produces great results because the kids actually learned nothing in the process while their parents and teachers fabricated their results.
This can be seen at university level where there are high drop out rates from many so-called ‘private school’ graduates.

It is you who is the ignorant one!

Anything:

News flash. Apple of the eye goes from 18 people in his/her AP Math class at school to 350 per class first year Engineering Maths. ½ fail that class. IMO 70% of kids that go to varsity should not be going to varsity. Do we need another 5000 political and social science graduates per year or would that billion runt be better spent lifting the grade 9 literacy rate from 35% to 70%

@ Johan Buys – you simply cannot compare school and varsity tuition methods: schools spoon feed, varsities merely share what you should know and you have to do the rest. It’s that jump reactive to proactive learning that many kids cannot cope with. The bright kids that I was at school with had no problems at varsity because they had already developed good study habits.

So where are these new good public schools you mention popping up? Oh wait, there aren’t enough being build by government, so when you cannot get into the filled-to-capacity good public school, now what? Do you send them to the bad public school?

Bet you didn’t think that far.

You’re completely missing the point.
Obviously there is a need to send your kids to school and to the best one possible in your situation. what I am alluding to is the fact that many of these new private schools advertise as if they are the creme dela creme of education, which they certainly are not. They charge exhorbitant fees and do not offer what already established top schools are providing. Education is not about the marks being spat out it is about the actual learning taking place, the discourse in that learning and the ability to use that knowledge in a meaningful way thereafter. Many of these private schools do not offer that. Ergo, people are being ripped off for fees that are actually not worth the paper the brilliant marketers put out there as fliers to attract attention to their school.

After checking some private schools in the Western Cape curriculums I just laughed, really some kids will only learn colors and clay.

If things are going so well with Curro, please explain why when it was listed in 3 June 2011 the share was trading @ 1012c and at close of day yesterday it traded @ 1800c. Seeing that it has never paid a dividend the return from day one to date has been a measly 7.5%

This is not a buy particularly in the light of a market that is reaching saturation point. Don’t worry about the ANC throwing a curved ball at private education from an investment point of view … Curro is going nowhere and neither is Advtech, both are on a downward spiral.

The only thing to do with these companies is to short them.

“What is a company is an aggressive growth phase and why would it be stupid (and be panned by the market) for offering a dividend?”

Please get a qualified FA. You are clueless on this one.

The problem with investing in education stocks like Curro & AdvTech is that they spend all this investment on development and further development, that they are more passionate about (rightly), than in paying dividends to shareholders.
So, from a business perspective, they’re fine, but for my investment philosophy, I don’t expect much ROI.

I have wondered about Curro’s share price, too – perhaps a reflection on much we value education in SA ..

Government schools back in the “Lekker old days”, early 70’s when I matriculated, had an average of 30 to 33 pupils per class with no ill effects. The low number of 18 pupils per class is symptomatic of low enrolment figures.

Like Steinhoff, Curro is not bedding down its growth through acquisitions and once enrolment drops, which it surely will as the middle class is shrinking, so will profitability. The quicker Curro brings the teacher / pupil ratio up to 28 the better. more schools is not the answer.

No ill effects? What was that backwards mentality that lead to you being global pariahs? That lead to crimes against humanity? That left your kids with your social bills? That led to the need for privatised schooling?

It takes a while to fill a new school. Few change schools. You have to get them from grade 1 or grade 8. The mature schools are at a LER of 28. Obviously.

Spot the guy with a massive chip on hi shoulder….

Sorry : I know the opex and capex of private schools very well : without endowments there is no way on this earth that it is an investable business. I welcome any challenge.. The optimistic return on capital is 4%.

Curro is simply obfuscating the numbers by a never-ending acquisition methodology. If it sounds familiar, well it comes from the same winelands town.

If these guys would just continue to do a proper job, I would happily just give them money for free to keep going.

government should just steadily sell public schools to Curro & Advtech and instead of wasting money on public educatio give each child an monthly education voucher of R1900.

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