Curro cashes in as state schools decline

Curro Holdings, the JSE-listed private school group, is cashing in on the deterioration of state schools as parents make lifestyle changes and downgrade luxury cars or forego holidays so they can send their children to private schools. 

On Thursday, Curro Holdings reported a significant increase in pupil enrolments despite a weak economic environment.

Analysts say the uptick in enrolments indicates that middle-class South Africans are willing to make sacrifices to send their children to affordable private schools.  

Reporting strong results for the six months ended June, the company recorded an increase in recurring headline earnings of 31.4% to R152m and headline earnings per share growth of 41.8% to 27.5c from 19.4c in the same period last year. It said average pupil numbers for the first half of 2022 increased by 6.6% from 66,167 in 2021 to 70,519.  Post-results, the growth continued with numbers reaching 71,011 by August 1.

Revenue increased by 15.5% to R2.06bn from R1.78bn, attributed to a 13.3% increase in tuition fees due to the growth in pupil numbers coupled with an annual fee increase in line with inflation.

All private education companies have said they have seen increasing learner numbers because of the collapse of the state system

—  Small Talk Daily analyst Anthony Clark

AdvTech, the JSE-listed private education group whose brands include Crawford Schools, Trinity House and Varsity College, said in a trading update last week it expected normalised earnings per share, excluding the effect of one-off transactions and corporate action costs, to be between 19% and 24% higher for the six months ended June compared with the same period last year. AdvTech is due to release results on August 29.

Small Talk Daily analyst Anthony Clark says Curro’s 6.6% increase in pupil numbers is “utterly commendable”, adding he believes this is a “function of the state system buckling as resources are diverted to other social needs such as social grants and perhaps paying off the huge and growing debt this country has”.

“Parents are deciding they will scrimp and save and send their children to have a better education and all the private education companies to date have said they have seen increasing learner numbers because of the ongoing collapse of the state system, on a primary, middle school and tertiary level, which is quite interesting.”

He said another critical fact was that the major increase in revenue for Curro included “inflationary driven price increases”.

“If they are now getting inflationary price increases it means they are able to keep on top of a cost creep which is going through the entire system in this country, and I think that is a very commendable situation.”

Makwe Masilela, who leads Makwe Fund Managers, said that even in a difficult economy middle-class parents would cut down on discretionary items to provide a good education for their children.

“People are happy to downgrade things like cars and holidays in order to pay for a good education.”

He said a lot of the “former model C schools have collapsed and the likes of Curro have managed to capture that market, which falls between the traditional private schools and state schools”.

This was because of the affordable pricing Curro schools offer, compared to the extremely costly private schools at the top end of the system. 

Curro Holdings delivered a “great set of results, especially coming out of the Covid period where you would have expected people maybe to downgrade or even send children back to government schools”.

“But the fact is people are unhappy with the state system and they would rather cut a lot of other things so that they can have their kids go to good schools,” said Masilela.

Curro CEO Andries Greyling agreed that private schools were continuing to draw pupils from state schools.

Since its establishment in 1998, Curro’s business model has been “based on the public education sector being unable to put down the infrastructure in expanding areas”.

“So if you think about Durbanville [in Cape Town], when last did you see a public school being constructed, or even Waterfall [Johannesburg]? These are all rapidly expanding areas. There is just no money being spent on expanding schools, and as more urbanisation happens, more infrastructure is required.”

Greyling said even though the government was spending about 20% of GDP on education, at least 80% of this was going towards salaries, leaving very little for the construction of new schools.

“So when we started many years ago we based our model on that. English schools, in particular, are declining in quality and you are sitting with anything between 40 and 60 learners in a classroom.”

Greyling said while the demand for placements at Curro’s primary schools is still high, with about 5,500 pupils in grade 1, the group’s “big intake, which we didn’t expect to be so high, over the past three years has been Grade 8”, where there are 6,800 pupils enrolled.

“Our grade 8 learner numbers are really exploding so it seems parents are withholding their children from private primary schools and then when high school starts they support us. They want to make sure their children can pass with a university exemption.”

He said apart from a lack of infrastructure, state schools are often far from where pupils live and are overcrowded.

Curro, which was originally listed on AltX in 2011 and moved to the JSE’s main board in 2013, has a total of 181 schools, with 77 physical campuses. Greyling said a campus is a physical site that includes a preschool, primary school and a high school, or possibly just a high school or primary school, depending on the site.  

He said about R800m of the R1.1bn earmarked for capital expenditure for the full financial year will be spent on increasing capacity and infrastructure at existing schools to accommodate the major increase in grade 8 enrolments as they move up through the grades.

“We have about 3,500 grade 12s at the moment. If you think about that, if we can maintain the 6,800 intake for the next year, that 6,800 is going to roll over into grades 9, 10 and then 11 and 12. And we need classrooms and more capacity for that.”

The remaining R300m will be spent on new schools and acquisitions.