Private education stocks are taking an awful beating.
PSG-controlled private schools business Curro, once regarded as the “star pupil” on the JSE, has been marked down 43% over the past 12 months.
Things look even more dismal if the market performance of Curro’s unbundled tertiary education offshoot Stadio is factored in. Stadio’s share price has plunged more than 37% over the same period.
Curro’s (and Stadio’s) main rival Advtech — which holds both school and tertiary education operations — has not been reprimanded as harshly, with its share price down 22% over the same period.
Sentiment for Curro weakened considerably on a trading update for the interim period to end-June.
If a once-off deferred tax liability adjustment was excluded, Curro recurring earnings should come in between 36c and 38c per share. This represents a pedestrian increase in earnings of between 3% and 9% — which is not nearly enough to justify a trailing earnings multiple of 34 times.
With Curro likely to need to invest heavily in building high school capacity in the next few years, the earnings growth scenario does not look too sprightly.
At this juncture, Curro’s market rating is still well above that of Advtech, which has been regarded as more conservative in terms of chalking up growth opportunities. Advtech trades on a trailing multiple of about 17 — which is roughly half the rating investors apply to Curro.
This rating gap now seems a little conspicuous considering the slowdown in Curro’s earnings. In fact, the ratings disconnect might well be a pointer to where Curro’s share price might move over the medium term.
Delta and Rebosis: a merger made in property heaven?
A merger with Delta Property Fund could be the lifeline that Rebosis Property Fund desperately needs. Rebosis has been hiving off assets to pay down debt, and a tie-up means it should be able to hang on to its remaining properties.
However, Delta also stands to benefit from the potential deal. Economies of scale could help both landlords weather the tough trading environment — they envisage that the combined entity will be the biggest black-owned and managed player in the sector, with office and retail assets worth R25bn.
Delta would gain exposure to the retail sector — although Rebosis’s retail portfolio has shrunk amid recent sales. That means Delta will be able to reduce its reliance on government-leased properties. SA’s public finances are under severe strain, so diversification is all the more important.
The wave of consolidation across the domestic property sector is broadly positive — scale matters when the going gets tough. Judging by the subsequent share price decline, SA Corporate Real Estate’s shareholders appear disappointed that the landlord, whose board has been in a state of flux in recent months, is not keen on pursuing any of the takeover offers it has received.
SA Corporate received proposals from the likes of Dipula Income Fund and Emira Property Fund. The question now is whether its suitors will walk away, raise their bids, or pursue an alternative route to a takeover.
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