Curro: Share price isn’t kid’s stuff or child’s play any more
Rapid growth at private schools business has cooled off, reflected in dwindling interest in the still-pricey stock
The market is frantically doing its homework on private schools business Curro – which trades at a heady earnings multiple of nearly 50 times.
As a fledgling business Curro’s determination to service a sprawling market for affordable private schooling caught the imagination of many punters.
They felt the dizzying earnings multiples were justified considering just how fast Curro’s school network was expanding, and just how rapidly the established schools were advancing up the profit J-curve.
But things have changed. The consumer is more hard pressed which means fee increases must be tempered, and there is extra competition in private schooling.
The bottom line is that it is now clear that it’s nigh impossible for Curro to double its earnings every year. This explains the steady drift in the share price from an all time high of about R50 in early 2017 to current levels around R27.
The earnings multiple – which was once as demanding as 200 times – has been re-set to a “more modest” 50 times.
Curro’s trading update – covering the year to end December – pencilled in headline earnings of between 59c/share to 61c/share – which represented a growth of between 22% and 27% on the previous financial year.
This means Curro sits on a forward earnings multiple of around 45 times.
While the new multiple may be far more modest than in previous years, it’s worth noting that rival Advtech (which also has a sizeable and highly profitable tertiary arm) reflects a multiple of 22 times.
The big question is whether the gap between the respective multiples will keep shifting closer – mainly courtesy of an ongoing Curro de-rating?