Fund managers Paul Theron from Vestact, and Rowan Williams, director at Nitrogen Fund Managers, weigh in on private schooling stocks on the JSE, breaking down which are good prospects for investors, and why.
Speaking on CNBC Africa’s ‘Hot or Not’ segment, the fund managers paid particular focus to private education group, Curro; newly listed retirement and secondary education group, Pembury Lifestyle Group; and Advtech.
Advtech, Curro and Pembury are small-cap companies listed on the JSE, and have a focus on private education in South Africa – a growing market sector, where there is increasing demand for an alternative to public education, which is seen as offering poor levels of teaching in the country.
According to Theron, he believes there is going to be “a listings boom” in private education, “because it’s obvious – unfortunately the state isn’t getting its game together… these (state) schools aren’t going to get better any time soon, so it’s a good opportunity for the private sector.”
Pembury Lifestyle Group
Speaking on Pembury, Theron noted that one of the draws to the stock is the fact that it isn’t exclusively in the education sector, but also includes retirement homes and late-in-life facilities. This, too, is a growing market that is under-serviced in South Africa.
However, Theron also noted that it’s too early to tell where the stock is going, as it has only been trading for a few months, and has a very small market capitalisation of around R233 million. “I’m going to go ‘not hot’, just on the scale and the newness of the business,” he said.
Nitrogen’s Rowan Williams had an alternative view – mentioning a R55 million investment injection from the Black Management Investment Fund, as well as the ‘two-pronged’ business approach with education and retirement making the stock a medium-term draw.
Curro is a more established private education group, with a market cap of R17.5 billion. The group develops, acquires and manages private schools across South Africa, and has had a successful performance on the JSE.
According to the fund managers, the stock has been trading for several years with a lot of “prospect” built into the price. Growth at the group has slowed after some rapid development, and it is now trading sideways.
The slowdown is likely due to the group’s shift to focus on spinning off its tertiary education business, Williams noted, which is a “capital hungry business” with room for expansion. This would provide two appealing investment opportunities he said.
Theron said that there is growing demand for Curro schools, and that the company is making acquisitions and developing new facilities to meet this demand. Because private schools only cater to about 5% of school-going children, there is “enourmous potential and plenty of scope” to grow, he said.
Putting a damper on this, however, is consumer pressure.
“Affordability is a big issue,” Williams said. “These stocks are almost seen as consumer stocks – and bad debt can be an issue. It’s getting a bit more balanced, and the top-end is getting saturated – so they (school groups) will have to move more downstream, where they will face some quality issues.”
Advtech is seen as Curro’s direct competitor in listed private schooling stocks, with a market cap of R9.7 billion and a similar success path in trade.
According to the fund managers, the group is more established than Curro, with more assets in the education space, with its host of colleges and tertiary institutions.
“They were resting on their laurels for a bit, as the established players in its chosen niches, but there was a massive growth opportunity, and it was too conservative,” Williams said.
Pushed by competition from Curry, “they have subsequently embarked on a massive capex programme and been fairly acquisitive,” he said.
With 82 schools and 28 tertiary institutions, Advtech is where Curro wants to get to, Williams said – the group is established, and the tertiary education business is exciting, with further potential for growth.