Private companies cashing in on government failure in SA

South African’s economy has stagnated, hampered by sluggish growth and a worrying trade deficit.

And while the overall snapshot of government’s performance in stimulating growth and providing decent public services has come under question again in 2015, the upshot is that it leaves a gap for private business to prosper in a number of sectors.

Communication

The communications sector is a market that’s dominated by the private sector. State-owned companies in the sector perform poorly across the board – with the main government-affiliated player, Telkom, historically mired with monopolistic behaviour.

While Telkom has managed to stage a successful turnaround in recent times, the company has been dogged by a tough financial performance over the past five years.

And while Telkom is only part-state-owned, driven to perform well for shareholders – other state owned tech and telco companies including Broadband Infraco and the South African Post Office shows the real problem.

Broadband Infraco has never turned a profit, while the Post Office has a well-documented history of recurring losses.

Vodacom and MTN have delivered real value and growth for investors over the past five years, with the latter only recently running into regulatory woes in Nigeria.

However, with operations in 22 countries, including an uptick in performance in SA, the company is expected to continue along a solid path over the medium term at least.

Communication company revenues 2010 – 2015 (ZAR millions)

Company 2010 2011 2012 2013 2014
MTN 114 684 121 884 135 112 136 495 146 930
Vodacom 58 353 61 197 66 929 69 917 75 700
Telkom 33 911 31 712 33 079 32 501 32 483
Broadband Infraco 318 297 393 237 302

Vodacom

Vodacom 5 year performance
Vodacom 5 year share performance

MTN

MTN 5 year performance
MTN 5 year share performance

Healthcare

The South African healthcare sector offers both public and private healthcare options for citizens. The public sector still covers the greater part of the population (about 80%, according to StatsSA), as private healthcare remains inaccessible – and unaffordable – to poor people.

The use of private healthcare is tied directly to medical aid schemes, where most medical aid members make use of private hospitals, and non-members use public facilities.

There are three big listed players in private healthcare: Mediclinic, Netcare and Discovery – and all three companies have shown strong growth over the past five years.

Healthcare company revenues 2010 – 2015 (ZAR millions)

Company 2010 2011 2012 2013 2014
Discovery 22 558 26 890 30 246 35 721 43 050
Netcare 22 474 22 584 25 174 27 382 31 783
Mediclinic 17 141 18 625 21 986 24 436 30 495

Mediclinic

Mediclinic 5 year performance
Mediclinic 5 year share performance

Netcare

Netcare 5 year performance
Netcare 5 year share performance

Discovery

Discovery 5 year performance
Discovery 5 year share performance

Education

South Africa’s education has a history of failure – particularly in mathematics and science.

Census data indicates that only an estimated 48% of students who begin Grade 1 actually complete Grade 12, with most learners dropping out of school in Grade 10 and 11 – while teachers and university professors claim that pass rates of 30% to 40% are just too low to be of any value, globally.

Private schools still make up less than 5% of all schools in South Africa, with just over 500,000 students enrolled in private schools out of a total learner population of 12.4 million.

Two listed players in private education in South Africa are Curro and AdvTech, which build and operate educational campuses across the country.

Education company revenues 2010 – 2015 (ZAR millions)

Company 2010 2011 2012 2013 2014
AdvTech 1 470 1 605 1 687 1 766 1 931
Curro 76 170 366 659 1 001

AdvTech

AdvTech 5 year performance
AdvTech 5 year share performance

Curro

Curro 5 year performance
Curro 5 year share performance

Security

Private security is big business in South Africa, which has one of the highest crime rates in the world. The industry employs close to half a million officers, which far outnumbers the number of police on the ground.

In 2014, the SAPS reported that there were 153,116 sworn police officials, but the number of registered security officers had jumped to 487,058 in the same year.

It’s difficult to gauge the financial success of these security firms as many are international companies with no local listing. But their success is evident in their growth.

ADT claims to have over 420,000 clients in South Africa – internationally the group has over 6 million, with over 250,000 gross additions every quarter.

Major local players in security are Bidvest Protea Coin and Fidelity Security group – the latter of which acquired the former’s cash-in-transit business this year.

Fidelity reportedly rakes in R5.5 billion in revenue annually, while Bidvest reported that its security division was a strong performer in its 2014 report.

Bidvest

Bidvest 5 year performance
Bidvest 5 year share performance

Another way in which private groups are moving ahead of public policing is the increase in private security estates in the country.

According to Estate Living, there are 250,000 residential properties in private estates in South Africa, of which 85% are considered security estates.

Before the economic crisis of 2008, estate development was recorded at 30% per year – but has since settled at levels of 7.5%, showing strong demand.

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Private companies cashing in on government failure in SA