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We take a look at the latest financial results of former market darling, Curro Holdings. The market has punished the group's share price in recent months and years as the lofty valuations it was holding came down to more realistic levels. So what exactly are Curro shares worth based on their latest results? Read on to find out
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About Curro (COH)
Curro was established in 1998, and is the leading for-profit independent school provider in southern Africa. It develops, acquires and manages independent schools for learners from the age of three months to Grade 12.
Curro believes that education is the cornerstone in the development of quality leaders and responsible citizens who will positively impact the economy, environment and society.
Curro’s vision is to make independent school education accessible to more learners throughout southern Africa.
Curro’s ethos and values
Four key principles inform Curro's value system.
They are:
These principles form the foundation of Curro’s ethical standards, which are included in the group’s code of ethics, codes of conduct, good citizenship and related policies.
Curro's services
Curro's schools apply 21st century teaching and learning methodology in classrooms, including the active involvement of technology. The Castles follow Curro's preschool curriculum, which was developed in-house. This assists in developing a child's physical, social and emotional well-being, while also providing a practical framework for both adult-facilitated and self-directed learning, laying the foundation before the child goes to primary school.
Curro considers the written curriculum to be the mainstay of its offering. It believes that successful learning takes place when the taught curriculum aligns with the intentions of the written curriculum.
The ancillary services vary between schools and include boarding, aftercare, cafeterias, school transport and activity centres.
School models
Curro provides the opportunity to learners from all walks of life to obtain quality education. It's product offerings are as follows:
CURRO SCHOOLS accommodate learners from 3 months old to Grade 12. Class sizes are limited to a maximum of 25 learners per class and the Independent Examinations Board (IEB) examination is written at the end of Grade 12. Tuition at these co-ed schools are traditionally parallel-medium (Afrikaans and English) from Group 4 to Grade 9 and dual-medium from Grade 10 to Grade 12. Naturally, a wide subject choice is offered in the Further Education and Training (FET) phase (Grade 10 to Grade 12). Excellent facilities and a significant number of elective subjects and extramural activities are offered.
CURRO SELECT SCHOOLS are schools that have been acquired by Curro Holdings. Although owned by Curro Holdings, these schools retain their original well-established identities and ethos. Select Schools accommodate learners from age three months to Grade 12, at the end of which the IEB (Independent Examinations Board) is written. The medium of instruction and learning is English, complemented by superior facilities, a rich heritage, sound academic and extramural results.
CURRO ACADEMY SCHOOLS accommodate learners from age five years (Grade RR) to Grade 12 and some Academy Schools also include a Curro Castle and can accommodate preschoolers. With a maximum class size of 35 learners, Academy Schools are co-ed, single-medium (English) and write the National Senior Certificate (NSC) examination at the end of Grade 12. This cost-sensitive model ensures the lowest possible school fees without compromising academic standards and the excellent Curro curriculum. Focussed sports and cultural activities are offered.
MERIDIAN SCHOOLS accommodate learners from age five years old (Grade RR) to Grade 12 with a maximum class size of 35 learners. Meridian Schools are co-ed, single-medium (English) and write the National Senior Certificate (NSC) examination
at the end of Grade 12. This cost-sensitive model ensures the lowest possible school fees without compromising academic standards and the excellent Curro curriculum. Focussed sports and cultural activities are offered. Meridian Schools are managed by Curro Holdings as part of a joint venture with Old Mutual.
The image below shows Curro's footprint across Southern Africa
Curro believes that education is the cornerstone in the development of quality leaders and responsible citizens who will positively impact the economy, environment and society.
Curro’s vision is to make independent school education accessible to more learners throughout southern Africa.
Curro’s ethos and values
Four key principles inform Curro's value system.
They are:
- Child-friendliness
- Positive discipline
- Christian ethos (ethics and morals)
- Creative thinking
These principles form the foundation of Curro’s ethical standards, which are included in the group’s code of ethics, codes of conduct, good citizenship and related policies.
Curro's services
- Nursery, primary and high schools offering balanced academics, sports and culture.
Curro's schools apply 21st century teaching and learning methodology in classrooms, including the active involvement of technology. The Castles follow Curro's preschool curriculum, which was developed in-house. This assists in developing a child's physical, social and emotional well-being, while also providing a practical framework for both adult-facilitated and self-directed learning, laying the foundation before the child goes to primary school.
Curro considers the written curriculum to be the mainstay of its offering. It believes that successful learning takes place when the taught curriculum aligns with the intentions of the written curriculum.
The ancillary services vary between schools and include boarding, aftercare, cafeterias, school transport and activity centres.
School models
Curro provides the opportunity to learners from all walks of life to obtain quality education. It's product offerings are as follows:
- Curro Castles
- Curro schools
- Curro Select schools
- Curro Academy schools
- Meridian schools
CURRO SCHOOLS accommodate learners from 3 months old to Grade 12. Class sizes are limited to a maximum of 25 learners per class and the Independent Examinations Board (IEB) examination is written at the end of Grade 12. Tuition at these co-ed schools are traditionally parallel-medium (Afrikaans and English) from Group 4 to Grade 9 and dual-medium from Grade 10 to Grade 12. Naturally, a wide subject choice is offered in the Further Education and Training (FET) phase (Grade 10 to Grade 12). Excellent facilities and a significant number of elective subjects and extramural activities are offered.
CURRO SELECT SCHOOLS are schools that have been acquired by Curro Holdings. Although owned by Curro Holdings, these schools retain their original well-established identities and ethos. Select Schools accommodate learners from age three months to Grade 12, at the end of which the IEB (Independent Examinations Board) is written. The medium of instruction and learning is English, complemented by superior facilities, a rich heritage, sound academic and extramural results.
CURRO ACADEMY SCHOOLS accommodate learners from age five years (Grade RR) to Grade 12 and some Academy Schools also include a Curro Castle and can accommodate preschoolers. With a maximum class size of 35 learners, Academy Schools are co-ed, single-medium (English) and write the National Senior Certificate (NSC) examination at the end of Grade 12. This cost-sensitive model ensures the lowest possible school fees without compromising academic standards and the excellent Curro curriculum. Focussed sports and cultural activities are offered.
MERIDIAN SCHOOLS accommodate learners from age five years old (Grade RR) to Grade 12 with a maximum class size of 35 learners. Meridian Schools are co-ed, single-medium (English) and write the National Senior Certificate (NSC) examination
at the end of Grade 12. This cost-sensitive model ensures the lowest possible school fees without compromising academic standards and the excellent Curro curriculum. Focussed sports and cultural activities are offered. Meridian Schools are managed by Curro Holdings as part of a joint venture with Old Mutual.
The image below shows Curro's footprint across Southern Africa
So to the numbers we go
Highlights of the financial results reported by COH in their financial results are as follows (All data relates to continuing operations)
The numbers we are interested in are discussed below:
- Learner numbers: +13%
- Revenue: +19%
- EBIDTA: +21%
- Recurring Headline Earnings per Share (HEPS): +7%
The numbers we are interested in are discussed below:
- Headline earnings per share of 37,1c per share
- PE ratio of 43.5 (yes its very high but strong earnings growth is still taking place implying the future PE ratios will become lower)
- Dividend yield: No interim dividend
- Profit for the period: R238million (up 171%% from R139 million for the prior period).
- Cash generated per share: 99c a share
- Net asset value per share: R13.22 (so trading at 1.34 times its book value)
- Cash on balance sheet per share: 53c a share (soabout 2.9% of the company's share price is made up by cash on balance sheet)
- Total number of learners for Curro Holdings: 51 305 (up 12% from 450870 the prior period)
- Total number of staff members: 6 103
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So any comments or guidance from management on the results?
Review of results
For the period ended 30 June 2019, Curro’s learner numbers increased by 13% from 50 691 to 57 173, increasing revenue by 19% from R1 240 million in 2018 to R1 480 million. Schools EBITDA (earnings before interest, taxation, depreciation, amortisation and head office expenditure) increased by 20% from R409 million in 2018 to R491 million for the period under review, with Group EBITDA increasing by 21% from R342 million to R415 million. The improvement in the EBITDA margin from 27% to 28% is due to increased efficiencies and capacity utilisation. Net finance costs increased by 49% from R73 million to R109 million as a result of long-term interest-bearing debt increasing from R2 310 million to R3 195 million and the impact of IFRS 16.
A once-off permanent reversal of a deferred tax liability of R53 million has decreased the effective tax rate to 2%. Headline earnings increased by 44% from R143 million to R206 million during the reporting period. Recurring headline earnings which excludes once-off charges increased by 7% from R143 million to R153 million. Headline earnings per share increased by 44% from 34.8 cents to 50.0 cents whilst recurring headline earnings per share increased by 7% from 34.8 cents to 37.1 cents.
New campuses and expansions
Curro will invest R223 million in the establishment of four new campuses (five schools) at Curro New Road in Midrand (a Digi-Ed campus and a Curro Private College), Curro Delft (a Digi-Ed campus) and Curro Academies at The Blyde (Pretoria-East) and in Mbombela. Major expansion projects are underway at Curro Vanderbijlpark, Building Blocks, Curro Hillcrest Academy and Curro Academy Pretoria. The estimated investment for expansion and replacement of assets for 2019 is R1 billion.
Balance sheet and funding
Curro has a strong balance sheet with quality, increasing cash flows which covers the Group’s ability to service debt. The interest service cover ratio for Curro (EBITDA/Net Finance costs (including capitalised interest)) was at three times which is well ahead of internal targets. Gearing levels (debt/equity) increased from 45% to 58% and will continue to be conservatively managed. Curro has also refinanced R850 million debt due for repayment in September 2020 with a 5-year bullet repayment loan that is now only repayable in 2024.
Directorate
With effect from 1 May 2019, Barend Petersen and Hennie Louw have resigned from the Curro Board. The Board thanks both Barend and Hennie for their meaningful contributions as directors. The Board is pleased to welcome Tsholofelo (“Tsholo”) Molefe to the Board and looks forward to her contribution. Tsholo is a CA(SA) and is the Chief Financial Officer at Telkom SA SOC Ltd. Tsholo has also been appointed as a member of the Audit and Risk Committee with effect from 1 May 2019. Zandile Nangamso Mankai (“Nan”), who is a member of the Audit and Risk Committee, assumed the chairpersonship of that committee with effect from 1 May 2019.
Dividends
No interim dividend was declared for the period under review (30 June 2018: Nil).
Prospects
The Board believes Curro is positioned for growth and will focus on increasing utilisation of the existing school infrastructure capacity in the short to medium term. Curro will also reduce capital outlay on greenfield schools over the medium term. The long-term prospects of the Company remain positive in terms of profitability and the contribution it will make towards the sustainable long-term development of South Africa and beyond.
For the period ended 30 June 2019, Curro’s learner numbers increased by 13% from 50 691 to 57 173, increasing revenue by 19% from R1 240 million in 2018 to R1 480 million. Schools EBITDA (earnings before interest, taxation, depreciation, amortisation and head office expenditure) increased by 20% from R409 million in 2018 to R491 million for the period under review, with Group EBITDA increasing by 21% from R342 million to R415 million. The improvement in the EBITDA margin from 27% to 28% is due to increased efficiencies and capacity utilisation. Net finance costs increased by 49% from R73 million to R109 million as a result of long-term interest-bearing debt increasing from R2 310 million to R3 195 million and the impact of IFRS 16.
A once-off permanent reversal of a deferred tax liability of R53 million has decreased the effective tax rate to 2%. Headline earnings increased by 44% from R143 million to R206 million during the reporting period. Recurring headline earnings which excludes once-off charges increased by 7% from R143 million to R153 million. Headline earnings per share increased by 44% from 34.8 cents to 50.0 cents whilst recurring headline earnings per share increased by 7% from 34.8 cents to 37.1 cents.
New campuses and expansions
Curro will invest R223 million in the establishment of four new campuses (five schools) at Curro New Road in Midrand (a Digi-Ed campus and a Curro Private College), Curro Delft (a Digi-Ed campus) and Curro Academies at The Blyde (Pretoria-East) and in Mbombela. Major expansion projects are underway at Curro Vanderbijlpark, Building Blocks, Curro Hillcrest Academy and Curro Academy Pretoria. The estimated investment for expansion and replacement of assets for 2019 is R1 billion.
Balance sheet and funding
Curro has a strong balance sheet with quality, increasing cash flows which covers the Group’s ability to service debt. The interest service cover ratio for Curro (EBITDA/Net Finance costs (including capitalised interest)) was at three times which is well ahead of internal targets. Gearing levels (debt/equity) increased from 45% to 58% and will continue to be conservatively managed. Curro has also refinanced R850 million debt due for repayment in September 2020 with a 5-year bullet repayment loan that is now only repayable in 2024.
Directorate
With effect from 1 May 2019, Barend Petersen and Hennie Louw have resigned from the Curro Board. The Board thanks both Barend and Hennie for their meaningful contributions as directors. The Board is pleased to welcome Tsholofelo (“Tsholo”) Molefe to the Board and looks forward to her contribution. Tsholo is a CA(SA) and is the Chief Financial Officer at Telkom SA SOC Ltd. Tsholo has also been appointed as a member of the Audit and Risk Committee with effect from 1 May 2019. Zandile Nangamso Mankai (“Nan”), who is a member of the Audit and Risk Committee, assumed the chairpersonship of that committee with effect from 1 May 2019.
Dividends
No interim dividend was declared for the period under review (30 June 2018: Nil).
Prospects
The Board believes Curro is positioned for growth and will focus on increasing utilisation of the existing school infrastructure capacity in the short to medium term. Curro will also reduce capital outlay on greenfield schools over the medium term. The long-term prospects of the Company remain positive in terms of profitability and the contribution it will make towards the sustainable long-term development of South Africa and beyond.
Curro (COH) share price history
The image below (taken from Sharenet) shows the share price performance of Curro over the last 5 years. And as the image shows the group had a stellar rise in 2015 and 2016 and since then it has been a horror show for COH shareholders.
The summary below shows the share price performance of Curro (COH) over various time periods:
- 1 week: -7.44%
- 1 month: -31.01%
- Year to Date (YTD): -34.7%
- 1 year: -46.7%
- 3 years: -60.42%
- 5 years: -39.09%
So should you buy their shares?
In our February valuation we said absolutely. And we will maintain that view. While the share price has come down significantly and growth in learner numbers have slowed, this is to be expected as the business matures. The need for their service is there, and with the poor public schooling system the demand for entry level private schools continues to grow. Sure during tough economic times people will look to cut on the money they pay for education so COH is not immune to the economic climate and circumstances. But we do believe that Mr Market has been harsh on COH shares.
Curro holdings valuation
So in our previous valuation in February 2019 we valued Curro shares at around R40 a share. Based on their latest financial results, their capex plans, cash generated per share, their gearing ratio (which needs to be watched as it has increased sharply) we value COH shares at R38.80 a share and we do believe they offer long term investors an excellent entry point into a business with strong future prospects. While sentiment towards COH is overwhelmingly negative (as shown on the massive share price decline over the last number of years) we are of the opinion that they offer great value at their current levels and should their learner numbers, profits and number of campuses continue to expand we see no reason why COH cannot trade at our valuation of R38.80 a share.