Private-education specialist Curro trades on a trailing earnings multiple of close to 100 times. To justify that dizzy rating, the company needs to grow earnings at a lick — perhaps as much as 50% a year.
A trading update released on Wednesday advised shareholders that Curro’s earnings and headline earnings per share for the six months to June would come in between 26.4c and 27.5c. This would represent an increase of between 20% and 25% on the corresponding period in 2016.
The slower earnings growth rate reflects Curro’s efforts to ready its tertiary education subsidiary, Stadio Holdings, for listing on the JSE. Stadio is in a development (read: rapid expansion) phase, and has incurred substantial costs as it starts to build critical operational (and academic) mass.
This serves as a reminder that Stadio still has to pass some tough tests before it assembles a business that can be compared to rival Advtech’s diversified and profitable tertiary hub.
While it seems Stadio is operating at a small loss, it is heartening that Curro’s core independent schools are zipping along merrily. With the tertiary segment out of the equation, the trading update estimated that the schools would generate earnings per share and headline earnings per share of between 27.1c and 28.2c.
If Curro doubles its interim earnings from its independent schools business for the financial year to December — as it did the previous financial year — then full-year earnings would come in at about 55c a share. That’s a forward multiple of about 78 times. It is still heady, but a lot less demanding than the previous 140 times multiple.
Resource Generation is an Australian listed energy company with extensive coal operations in the Waterberg region. It is going through a tough time, with revenues down almost 60% in financial 2016 and cost increases bumping up the previous year’s loss.
This is the brief background to one of the rather unusual proxy voting decisions taken by the Public Investment Corporation (PIC) during the quarter to December 2016.
The largest equity investor in the country is not usually reluctant to take a stand on remuneration matters when they are put to the vote. PwC’s report on remuneration shows the PIC votes against more than 50% of remuneration policies. It does this in preference to engaging with management behind closed doors.
The PIC has a 19.49% stake in Resource Generation and at the Australian company’s latest annual general meeting it abstained from all three resolutions put to shareholders. At least one of these resolutions related to remuneration.
The PIC said in its proxy report that it did not want to vote against the remuneration policy because of the "two strikes" rule in the Australian Corporations Act in terms of which a vote of more than 25% of shareholders against the remuneration report for two successive years meant all the directors had to stand for re-election if 50% of the shareholders demanded it. An election must be held within 90 days, while the CEO runs the company during this time.
This was evidently more consequence than the PIC could handle. "As one of the majority shareholders [the PIC] decided to abstain and engage Resgen on its remuneration policy," it said.
•Neels Blom edits Company Comment (blomn@bdlive.co.za)
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