Private schools are cashing in

2014-03-30 14:00

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This as SA is rated as having the worst public education systemof all middle-income countries in the world

As the public education system continues to falter, the independent education sector is growing apace, translating into handsome returns for those invested in listed companies that operate private schools. And the black middle class appears to be driving most of the sector’s growth.

Frank Thompson, the CEO of JSE-listed independent education and recruitment group AdvTech, said more than two-thirds of students educated by companies in the group and candidates placed in jobs are black.

AdvTech owns schools such as the Crawford colleges and Trinityhouse, as well as tertiary institutions Varsity College and Vega.

Curro CEO Chris van der Merwe said more than half of his smaller listed education player’s 27?300 students are black.

Thompson said this suggested “more and more previously disadvantaged people are getting an opportunity to get a top-class education. Most parents have shown they believe in a top-class education.

It’s not confined to a particular group”.

In a study published last year, the Centre for Development and Enterprise, a policy research organisation, found South Africa had the worst education system of all middle-income countries that measured educational achievement.

Another study from the centre showed pupil enrolments in public schools in the 10 years to 2010 grew by just 1.4%, and enrolments in independent schools – although from a much smaller base – grew by 75.9%.

Shareholders are pocketing handsome returns from the sector. AdvTech recently announced a modest 5% increase in revenue for the year to December 2013. Its schools division accounted for the largest chunk of revenue at R818.6?million, ahead of its tertiary and resourcing divisions.

The growth in schools’ revenue was mostly driven by significant increases in student numbers, mostly at Trinityhouse.

AdvTech’s shareholders – the largest being institutional shareholders Coronation Fund Managers (26.4%), Kagiso Asset Management (9.8%) and Sanlam Investment Management (6.4%) – will now walk away with a final dividend of 15c a share, bringing the dividend for the full year to 25.5c a share.

The pressure is on for Curro to declare a dividend.

A relative newcomer – it only listed in 2011, while AdvTech listed in 1987 but entered the private schools market in 1997 – Curro grew revenue by 80% last year to R659?million. Its profit for the year more than doubled.

But Curro has been using all its spare cash either to build new schools or expand its existing campuses. And its shareholders, the largest of whom are investment holding company PSG Group and BEE outfit Thembeka Capital, will have to be patient for just a little longer.

“Curro has strong support from PSG and its shareholders,” said Van der Merwe.

This meant Curro could build about five new schools each year and also make an acquisition or two.

“This is why we grew so fast. Our product is also perceived by parents as fair value. This means that more and more parents support Curro’s strategic intent of making private school education more accessible because of its affordable products.”

The company plans to raise almost R1.6?billion in a mix of bonds or long-term bank funding and a share rights issue this year, all of which would be used to develop, expand and purchase more schools.

The group’s aggressive spending will see it outpace its older counterpart by the end of this year. By January, it had 31 schools with more than 27?000 pupils, and it plans to add 10 more schools. AdvTech has just more than 13?000 pupils in 37 schools.

But Thompson does not see Curro as a threat.

“[They’re in a] different market sector,” he said. “We can’t say everybody in the private education market is competing with each other. Their approach is different,” he said.

AdvTech recently appointed former Google SA country manager Stafford Masie and Microsoft SA boss Mteto Nyati to its board to “heighten the group’s focus on its technology strategy”.

Farren Roper, who previously headed the FNB Connect internet service provider and was instrumental in the development of FNB’s mobile banking app, also joined the company as a director of the schools division.

“All three are nonexecutive directors, which means they’re not involved in the operation of the business,” said Thompson. “Their job is to oversee and question our operational decisions. They have the expertise to ask the right questions.”

And what about the technology strategy? Does it mean the schools division is moving away from textbooks to e-learning?

“Technology is fundamentally changing education. Students are becoming more tech savvy and reliant on technology. So we almost have to do that [move away from textbooks]. We’ve invested in this strategy [R500?million over the past five years] to ensure we embrace the growing role of technology.”

Curro is already competing in this space, with 7?000 pupils already working on tablets. “We have a dedicated IT team at head office and see IT as the future of private school education,” said Van der Merwe.

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