Investment opportunities include the likes of ADvTECH, Curro and the more recently listed Stadio, which was unbundled from Curro. 

Over the course of almost 20 years – from 2000 to 2019 – the number of public schools in the country shrank from 26,789 to 23,076, while the number of private schools more than doubled, from 971 to 1,922 over the same period. 

Sven Thordsen, an analyst at Anchor Stockbrokers, says that since it was launched in 2009, Curro has emerged as the largest private school operator in the country – with 181 schools and more than 71,000 learners as at the end of July 2022.

Two-thirds of expansion has been developed at a significant cost, amassing a total property portfolio of R8-billion. However, Thordsen says there is a disappointing overall trend in utilisation rates, suggesting the aggressive expansion strategy has not delivered as anticipated. 

The fact is that the South African economy has stalled since Curro’s more aggressive years of expansion between 2013 and 2016, and, more recently, Covid has had a significant negative impact on consumer affordability. 

“Low economic growth has impacted certain cities and regions more than others, with urbanisation an ongoing trend. This is impacting Curro with schools in underperforming provinces such as Limpopo, Mpumalanga, North West and Northern Cape,” he says. 

Visit Daily Maverick’s home page for more news, analysis and investigations

Although the aggressive expansion strategy was intended to establish a meaningful national network of schools catering to different price points and markets, much will depend on how the company manages the situation from this point. 

Thordsen says net school numbers will likely remain flat for two years and potentially longer, a major departure from its aggressive historic strategy. 

“The focus is now on filling its capacity and cutting back significantly on capex. Developed school capacity is at 67% utilisation, below the group average of 70%, and this is where there is considerable potential as existing grades are filled, particularly in high schools,” he notes. 

Revenue rocketed from a modest R166-million in 2011 to just over R2-billion for the six months to June this year. Curro has a national footprint, with a high concentration in Gauteng (85 schools) and the Western Cape (34 schools). 

Source: Curro interim results to end June 2022

Warren van der Westhuizen, a portfolio manager at Old Mutual Investment Group, says the cost-of-living crisis has impacted learner numbers and bad debt across the private education sector. 

“This means school fee increases have had to be very much in line with inflation at around 5%.” 

Across the education sector, the majority of income is derived from fees, with some ancillary income from bus fees, aftercare and boarding school fees – all of which are picking up again now that schools are back at full capacity in a post-Covid world. 

Competitor ADvTECH includes the likes of Crawford, Trinity House and Abbotts College in its school division, with Vega College, Varsity College and Rosebank College in its tertiary division. 

For the six months to June this year, ADvTECH posted an 18% increase in revenue to R3.4-billion. While this is almost double Curro’s revenue for the same period, ADvTECH has bundled its tertiary and secondary offerings into a single group structure. 

The schools division in South Africa alone has just under 30,000 learners, with another 7,000-odd secondary school learners in the rest of Africa. 

Thordsen says he envisages that ADvTECH’s South African school margins will widen from 18.9% to 19.2% for the 2022 financial year given ongoing cost efficiencies, fee increases in this year compared to zero increases last year, and the reintroduction of costs (meals, sports coaches, general staff) post Covid being fully matched by revenue. 

“The political environment will affect the rate of emigration, which has an impact on student leavers, particularly at premium schools. On the positive side, ongoing student enrolment issues at public schools and universities could lead to better enrolments at private institutions,” he says. 

Relative newcomer in the listed education space – and sister to Curro – Stadio posted a 13% growth in revenue to R613-million for the six months to June this year, with 38,348 students, up 11% from the same period last year. 

Stadio has set a target of 56,000 students by 2026, with 80% doing distance learning and 20% doing contact learning. 

Contact learning student numbers declined by 4% to 5,662 by the end of June this year. The decline in contact learning students is, in part, due to Milpark transitioning away from offering contact learning programmes in line with the company’s five-year vision. 

The pandemic also reduced new student intakes during 2021, resulting in fewer students rolling over into 2022. Despite a strong cash position – with a cash balance of R167-million at the end of June – Stadio management chose not to declare an interim dividend. BM/DM