Pembury Lifestyle Group (PLG), which has investments in private schools, has lost 93% of its value since listing more than two years ago and has underperformed the small cap index.
Three weeks ago, the troubled company said it would offload its retirement villages business to focus on the lucrative private education sector.
The group launched PLG Schools in 2014 and has since opened 11 schools across Gauteng, North West and Limpopo. Its decision to focus solely on private education comes as its auditors raised questions about its survival. The group reported a net loss of R40.7m for the year to December 2018. Its current liabilities of R57.2m exceeded its current assets of R5.3m, said its auditor. The group’s share price, which listed at R1 at the end of March 2017, now trades at 7c and has a market capitalisation of R24m.
Since March 2017, the small cap index has fallen about 24.8% while the JSE’s Alternative Exchange for small to medium-sized companies is down about 37%.
The private education sector is considered to be a lucrative space that offers an alternative to government-run schools. In recent years, the private education market has seen a rise in schools that provide quality education at fee levels that are comparable to former model-C schools managed by the government.
Pembury Lifestyle Group chair Lou Brits said in a statement in May that the company’s strategy for the PLG business is to acquire more schools, buildings and seek joint-venture opportunities.
CEO Andrew McLachlan also said in the statement that affordable private education “works” and the product is needed by a large market.
“PLG Schools is also distinctive in finding a particularly quick route to profitability — our schools typically become profitable within 12-24 months, an outcome that other groups are not able to replicate,” he said.
Pembury did not respond to requests for an interview.
Schooling market
Small Talk Daily analyst Anthony Clark told Business Day the only way for Pembury to save itself is to break up the company and focus on the schooling side, which has a much lower capital commitment than retirement assets.
“If they don’t get the schooling side right, and the schooling market at the moment is very difficult, then I actually fear for Pembury’s listed existence — given the accounting problems, the constant management changes and the corporate governance issues that have been endemic to the company,” Clark said.
Clark wrote in Investors Monthly that private education has fairly predictable earnings, is cash generative and offers a service that is persistently in demand, even more so given the deterioration of state education.
At the end of January, PLG had 2,485 pupils, up from 2,180 in December. Its rivals have also shown strong growth in pupil numbers.
PSG-funded Curro independent schools said it increased the number of pupils at their schools to 51,305 from 45,870 for the year to December 2018, with its revenue for Curro and Meridian schools climbing 19% to R2.4bn. Pupil intake at ADvTech schools increased 12% to 30,827 in February 2019. The company, which runs 103 schools, cited emigration and financial pressures as some of the challenges affecting enrollment.
Avior Capital Markets analyst David Talpert said companies see a gap in the education market, to open schools that appeal to middle-income households.
“There is opportunity, and almost all of these players are focusing on lower-fee schools that may have fewer facilities than a premium school but offer good, quality education that is comparable or better than a former model-C school,” said Talpert.
However, the issue for former model-C schools is that they have limited space and probably less funding from the government, he said.
“Government is effectively phasing out these schools; with time you will see fewer model-C schools, so there is a big opportunity.”
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