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Curro doesn't get an A


Curro doesn't get an A

Curro Holdings posted slower-than-anticipated growth at bottom line, with headline earnings increasing 17% to 49c per share

Marc Hasenfuss

Education business Curro Holdings, which pitches a high growth low-fee private school model, failed to impress the market with its report card for the year to end December 2017.
The PSG Group-controlled company, however, is still firmly on the front foot in its expansion endeavours with a hefty R2.3bn, about 15% of the market capitalisation, earmarked for capital expenditure in the financial year ahead.
In results released on Monday, Curro posted slower-than-anticipated growth at bottom line, with headline earnings increasing 17% to 49c per share. Curro traded on a demanding earnings multiple of more than 80 times ahead of the release of the financial results, suggesting that the market was banking on a much higher rate of growth at bottom line.Private education has been one of the few sweet spots on the JSE where the two mainstay counters, Advtech and Curro, have produced strong top and bottom line growth over the last seven years — capitalising on a floundering public school sector.
The market, though, did not hesitate to mark down Curro’s shares, which tumbled 6.6% to close at R36.15. Market watchers on social media argued that Curro’s latest earnings growth did not justify the heady market rating accorded to the share.
Lentus Asset Management chief investment officer Nic Norman-Smith said the reality of investing in a business such as Curro was that shareholders were not focused on short-term earnings. “The company is building scale and an operating platform that will hopefully generate significant cash flows into the future.” However, history showed that investing on future expectations could have unpleasant consequences.“But the PSG management team have a stellar track record in backing highly successful businesses. People are willing to bet PSG’s instincts are correct about Curro.”
A divisional breakdown showed Curro’s mainstay schools business performed soundly with revenue up 27% to R1.83bn and earnings up 33% to R232m. The drag came from the smaller Meridean venture, which offers lower cost schooling and is mainly centred on the Northern Academy school in Limpopo. Meridean posted a 1% drop in turnover, but slid R31m into the red.
Curro CEO Andries Greyling said the turnaround effort at Northern Academy was the vital to a sustainable profit performance at Meridean. The highly geared Meridean division, which had Old Mutual as a 35% shareholder, would be recapitalised.
Although the operating performance lagged behind expectations, Curro is determined to invest up to R2.3bn this year, the bulk earmarked for acquisitions.
Greyling said seven new campuses would be completed in 2018, five in Gauteng and two in the Western Cape. The company had also after financial year end acquired Baobab School, a primary school in Gaborone and another independent school group based in the Free State.
Greyling said Curro, which now operated 60 campuses, would look for new acquisitions in SA and the rest of Africa.

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