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Curro Holdings (COH) will be the stock in focus: (Price at time of writing: R38.50 as 28 March 2016)
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Background and overview of Curro Holdings (COH)
The current state of education in South Africa has given rise to a significant gap in the market for affordable private schooling. As the middle class in South Africa expands more and more parents will choose to send their children to private schools as public schools does not meet ever higher expected standards. Below from Curro's website:
MISSION
Curro’s mission is to make quality independent school education accessible to more learners.
VISION
Curro’s vision is to make independent school education accessible to more learners throughout South Africa, reaching 80 schools by 2020 and accommodating 80 000 learners.
VALUES
Curro’s values originate from its founding date. As a group of concerned, dedicated and experienced educators, four key components were identified that had to inform the value system.
BRANDS
To achieve the vision, Curro divided the original brand into six brands, or lines of business.
MISSION
Curro’s mission is to make quality independent school education accessible to more learners.
VISION
Curro’s vision is to make independent school education accessible to more learners throughout South Africa, reaching 80 schools by 2020 and accommodating 80 000 learners.
VALUES
Curro’s values originate from its founding date. As a group of concerned, dedicated and experienced educators, four key components were identified that had to inform the value system.
- Child Friendliness
- Positive Discipline
- Christian Ethos and Values
- Creative Thinking
BRANDS
To achieve the vision, Curro divided the original brand into six brands, or lines of business.
- Curro Schools
- Meridian Schools
- Curro Select Schools
- Curro Castle Nursery Schools
- Curro Academy Schools
- Embury Institute for Teacher Education
Scroll over or click on the funnel chart to get more details of COHs latest financial results
Financial review:
COH is still a growing business with massive expansion plans. These plans costs a lot of money. Its the initial fees to buy the relevant premises build schools and facilities to operate in etc. In addition to this their brand name still has to develop in order for them to attract more students to their schools. Thus when looking at the financial results one should take note that expenses will be high as they funding their expansion program.
The product offering is compelling though. The public school system in South Africa is declining in quality and and the number of learners keep increasing. Its therefore not surprising that parents are willing to send their children to private schools. Curro aims to offer afforadable private schooling to the lower middle and upper middle income groups.
The product offering is compelling though. The public school system in South Africa is declining in quality and and the number of learners keep increasing. Its therefore not surprising that parents are willing to send their children to private schools. Curro aims to offer afforadable private schooling to the lower middle and upper middle income groups.
The graphic below shows the contribution of COH's operations they hold stakes in or own, to their turnover and profits.
Curro has grown their learners from 28 737 in December 2014, to 36 085 by 30 June 2015. In December 2013 Curro had 21 908 learners. In the 12 months from December 2013 to December 2014 Curro grew their number of learners by 6829, In the 6 months from end December 2014 to end June 2015, they grew their learner numbers by 7348. Clearly momentum is building for Curro and their learner numbers are growing substantially. They currently have 42 campuses open. Their aim is to have 80 campuses open by 2020. This leaves them 4 years in which to open a further 38 campuses. With an average of 859 learners per campus, if they meet their target of 80 campuses by 2020, their learner numbers will be 68 720. That's an almost doubling of numbers in a very short space of time.
Valuation:
Based on COH's financial results and their current rapid expansion plans COH does look very expensive when looking at traditional valuation tools such as PE ratios or dividend yields. Prospective buyers of the share should not stare them blind at the massive PE ratios of lack of a dividend. They should rather ask whether COH is operating in sector they feel will see substantial growth in future? If the answer to that question is yes, we suggest buying COH as we feel they are well placed to take advantage of the poor public education system in South Africa. With its growing middle class, more and more people will be able to afford private schooling for their children. And this is where COH will get their learner numbers from. In addition to this the expansion costs will slow down, future earnings will grow, leading to substantial profits for COH in future. Based on their expected future earnings and earnings potential we value COH at between R44.00 and R46.50.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
