SA’s largest private school group Curro will cut capital expenditure by about a fifth in 2020 as SA’s largest private education group struggles to retain students in a weak economy.
Founded in 1998, Curro has been growing at a breakneck pace — the number of students has increased 15-fold since 2011 to nearly 63,000. This as middle-class and higher-income parents, frustrated with under resourced, over-crowded state run schools, splashed out on private education.
But an economy that has hardly grown in the past 10 years, coupled with record low wage increases, has made it harder for the company — controlled by SA’s investment heavyweight PSG Group — to enroll and retain new students.
Curro, which reported a slight increase annual profit on Tuesday, said capital expenditure is likely to be as much as R1bn in this year after spending R1.3bn, mainly expanding its existing campuses and building new ones in 2019.
The group’s headline earnings per share, a widely watched measure of profit that excludes one-off, non-operational items, edged up 2% to 61.1c per share.
It cut its final dividend to end-December by 15% to 10.2c as money flowed to interest payments on the company’s R3.6bn net debt racked up to build new schools and fund acquisitions. Finance costs jumped 45% to R279m.
“Although these investments are not yet yielding profits in excess of the cost of debt, we are encouraged by the performance of these schools in such a short time frame,” the group said.
The group had a portfolio of 175 schools as of the end of December, with the number of students rising 12% to 57,597 during the year.
The results were as expected, and although 2019 will be the group’s “annus horribilis”, Curro is likely to see a rebound in earnings in 2020 and 2021, Small Talk Daily’s Anthony Clark said.
Curro invested heavily in new secondary schools to ensure it would retain children moving through primary schools, and the improved capacity utilisation at its existing schools as children migrate is likely to pay off, he said.
Of more concern was a R100m impairment of its property, which was surprising given that Curro’s buildings were new, Clark said.
“For a company that has invested heavily in new buildings, to see impairments so early on in their lifecycle indicates that perhaps the underlying growth scenario, and their positioning of their properties, wasn’t optimal in their rush to expand,” he said.
In coming years, Curro will be likely to tweak its model, and seek growth in existing schools, rather than investing in new ones, Clark said.
Curro closed nearly 8% lower at R12.45, with its shares having lost about two-thirds of its value over the past two years.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.