The fast-expanding private education group eyes standalone schools to help boost its pupil numbers
Private-schools group Curro Holdings, which is in the throes of spinning off its fledgling tertiary interests into a separate listing, could still bag a couple of acquisitions before year-end.
Speaking after the release of interim results to end-June, CEO Andries Greyling said a handful of potential deals were being investigated that could add meaningfully to pupil numbers.
He was hopeful one or two deals could be brought to book before year-end. "We are seeing more and more standalone schools some I was not even aware of where we think we can do a deal at a fair price."
Since listing in 2011, Curro has grown through a rapid expansion of its eponymous private school brand, but has also made selected acquisitions of standalone schools.
Greyling said Curro had a good track record of markedly boosting profitability in schools it had acquired.
At the end of June, Curro had 127 schools across 54 campuses with more than 47,000 pupils. The divisional breakdown showed 91 "developed schools" and 36 acquired schools.
The interim results showed Curros earnings were up 24% to 27c per share, with losses from the smaller Meridian lower-costs schools division and fledgling tertiary education business Stadio Holdings weighing on the bottom line.
On a standalone basis, the schools segment showed a 28% gain in revenue, to R915m and a 64% jump in earnings, to R128m. Meridian whose pupil numbers dwindled at its Northern Academy in Polokwane posted a R15m loss.
Anthony Clark, an analyst at Vunani Securities, said the unexpected fall-off in demand for low-end schooling coupled with a 120% jump in bad debts (to R17.3m, or 1.6% of revenue) reflected the state of the domestic economy.
"It must be really weak if parents are skimping on paying school fees or as in the Meridian low-end schooling simply removing pupils or staying away," he said.
However, Clark stressed that the core Curro schools brand remained the powerhouse.
"These schools cater for the mid to upper end of the private education market and continue to motor ahead."
A J-curve table accompanying the interim results showed Curros first eight schools developed before 2009 operating on an ebitda (earnings before interest, tax depreciation and amortisation) margin of 33% at 87% capacity. The six schools developed in 2010, which had larger pupil-teacher ratios and were in single-language format, were operating on average margins of 38% at 70% capacity.
Greyling said that a sustainable average margin of 40% was possible and that a new Curro Academy in Wilgeheuwel was already managing a margin of more than 30%.
Most encouraging for Curro shareholders was that operational cash flow increased 20% to R262m equivalent to 64c per share. Net cash generated came in at R167m, or about 40c per share.
Greyling said it was unlikely that Curro which, until 2016, has raised fresh capital from shareholders every year since listing would need to tap the market for additional funds.
"We are happy with our cash flow and gearing and we would only look to raise funds from shareholders if a large acquisition presented itself."
Greyling said Curro remained on track in achieving its target 80 campuses by the end of 2020.
In 2017, Curro will invest R600m in new schools.
These will include Curro Academies at Mamelodi, Diepsloot and Sunningdale in Cape Town and high schools at Roodeplaat in Pretoria and Sitari in Somerset West.
About R900m will be spent on expansion and upkeep at existing schools.
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