Learning difficulties: Stadio has a multiversity of solutions

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INVESTMENT ANALYSIS

Learning difficulties: Stadio has a multiversity of solutions

Tertiary students no longer have to scrape into a public university to get an employment-boosting education

Chris Gilmour


Private education at primary, secondary and tertiary levels is growing rapidly in developing countries and SA is no exception, with the PSG group of education establishments very much at the forefront of this phenomenon.
As governments rein in spending and reduce budget deficits, their ability to expand public education diminishes, leaving the private sector as the educational torchbearer.
Stadio Holdings was spun out of Curro, PSG’s for-profit school operation, and listed on the JSE a year ago. Its “multiversity”‚ model comprises 12 tertiary education campuses, with around 5,000 onsite students and 23,000 distance learners. Operations include the Embury Institute for Higher Education, Milpark Education, Lisof Fashion Design School, Southern Business School and the film/performance Afda.
Yet Stadio cannot call itself a university, as it lacks the breadth of faculties. Currently it offers business & commerce; education & training; creative industries; and law, security & political science. More faculties are in the pipeline, being information technology; engineering & manufacturing; agriculture & nature conservation; and architecture & the built environment. The aim is to add a further two, being health & medical science; and natural & life sciences. Until additional faculties are in place, Stadio can only refer to itself as an institute of higher learning.
Drawing on the success of Curro in the pre-, primary and secondary school spheres of education, Stadio aims to fill the gaps that exist at tertiary level. However, its mission is more difficult, as the public primary and secondary schooling situation in SA is almost entirely dysfunctional, whereas public tertiary education standards remain somewhat high.
Overall, tertiary level student enrolment in SA has risen from 557,000 in 2000 to over 1.1m in 2016, with demand for places now far exceeding supply. There is limited infrastructure in the public tertiary education space and the government no longer has the funds to build more capacity. Often, prospective students find that they cannot get into higher learning institutes even with extremely high matric results and only those with outstanding entrance qualifications are admitted.
This is where Stadio and similar privately-owned providers come in, and with the government’s blessing, as advanced education means youngsters have a significantly greater chance of securing employment. While the narrowly defined unemployment rate in SA stands at just under 28%, the graduate unemployment rate is only 5% – the implication being that a decent degree qualification significantly increases the probability of securing a job and therefore personal economic security and stability.
The state still dominates the SA tertiary education market, with 26 learning institutions serving 976,000 students, and an 85% market share. The balance comes from 123 private tertiary education institutions with 167,000 students, and international experience indicates this segment will grow faster than the public sector. The global average is that a third of students are enrolled at private higher education institutions; the OECD figure is 31%; Brazil reports 71%; Chile is around 84%; Latin America at 49%; and Asia at 42%. So the potential in SA is obvious.
For the Stadio interims to June 2018, student numbers rose from 25,000 comparative to nearly 28,000; revenue increased from R35m to R301m; Ebitda swung from a negative R1m to positive R60m; and headline earnings per share increased from minus 0.8c to positive 3.5c. Results are notably up as they include the recent acquisitions of Lisof and Milpark Education.
The share price has declined from a high of 845c in mid-January to the current level of around 430c. The rolling price earnings ratio is now around 140 times, so an awful lot of hope regarding earnings growth is built into it, even with the recent share price slide. The tight economy will likely inhibit the ability of parents to send their children to private universities in the numbers that were apparent a few years ago. But the longer-term prognosis, assuming a return to growth in the South African economy, seems good.
Chris Gilmour is an investment analyst.

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