Our opinion on the current state of CURRO(COH)Curro (COH) is a private education group that concentrates on building and running schools for children up to matric. Their tertiary division was unbundled with effect from 3rd October 2017 and separately listed on the JSE as Stadio (SDO).
Curro has taken advantage of the general decline in government education since 1994. It is a spin-off from PSG (which now holds 17.2%). On 30th December 2015, it reached one of the highest price:earnings (P:E) ratios ever recorded on the JSE at 245. This was mostly because of its perceived "blue sky" potential. There seemed to be no limit to the expansion of its business model as it acquired or built more and more schools.
Curro runs 178 schools and 76 campuses with an average of just over 72,000 students. The company has reported falling pupil numbers and parents under financial pressure to pay school fees. It has also impaired the value of its schools by R202m and increased its bad debts provision.
On 1st March 2022, PSG announced that it would be unbundling its holding in Curro (63.6%) into the hands of PSG shareholders. The objective is to release value into the hands of PSG shareholders. The company is engaged in legal actions with the City of Johannesburg to prevent schools from being classified as businesses for the purposes of rates. This action was found in their favour on 2nd March 2023.
In its results for the six months to 30th June 2024, the company reported revenue up 8.3% and headline earnings per share (HEPS) up 16.2%. The average number of learners increased by 0.5% to 72,758. The company stated, "The total school fee revenue increased by 6.8% due to the growth in learners, coupled with the annual increase in school fees for this year, which averaged about 6.0% per learner for this year. The group recorded a strong increase in ancillary revenue, which was 17.2% higher than the previous period."
In a trading statement for the year to 31st December 2024, the company estimated that HEPS would increase by between 9.3% and 17.5%. EPS was expected to increase by between 117.1% and 217.1% due to the reversal of impairments worth between R340m and R380m.
Technically, the share is in a strong upward trend which has been in place since June 2023. Education is generally a good investment because parents tend to pay in advance for their children's education, which means the education companies have lower working capital requirements. While they do not tend to have union problems, they are capital intensive as each school requires significant infrastructure to function, and this adds risk.
