Our opinion on the current state of COH

Curro Holdings Limited (COH), a premier private education provider in South Africa, has been a key player in the education sector since its inception, focusing on delivering quality education from early childhood development up to matriculation level. The unbundling of its tertiary division, which resulted in the separate listing of Stadio (SDO) on the Johannesburg Stock Exchange (JSE) on 3 October 2017, marks a strategic move to streamline its focus on primary and secondary education. Curro's growth and expansion capitalize on the declining standards of government education since 1994, demonstrating the demand for private education in South Africa. With PSG, a significant investment holding company, holding a 17.2% stake after the unbundling of a majority of its shares to PSG shareholders in March 2022, Curro continues to leverage its association with PSG's broad investment portfolio.

As of December 2015, Curro reached a remarkable price:earnings (P:E) ratio of 245 on the JSE, reflecting its perceived potential for unlimited expansion through acquiring and building more schools. Currently, Curro operates 178 schools across 76 campuses, serving an average of just over 72,000 students. Despite facing challenges such as declining pupil numbers and increased financial pressure on parents affecting school fee payments, leading to a R202 million impairment of its schools and an increased bad debt provision, Curro has shown resilience. The company's strategic litigation against the City of Johannesburg's classification of schools as businesses for rate purposes, which concluded in Curro's favor on 2 March 2023, underscores its commitment to maintaining operational sustainability and affordability of private education.

For the fiscal year ending 31 December 2023, Curro reported a 32% increase in recurring headline earnings per share (HEPS) and a 15% rise in revenue. This growth is attributed to a 2% increase in the weighted average number of learners, reaching 72,031 (up from 70,724 in 2022), and a 12% increase in tuition fees driven by growth in learner numbers, price-mix across grades, and annual fee adjustments. Additionally, ancillary revenue saw a 33% increase from the previous year, contributing R120 million to the revenue growth.

The share price of Curro has experienced sideways movement since the onset of COVID-19 in March 2020, but recent trends may indicate the beginning of an upward trajectory. The education sector remains an attractive investment avenue, given that parents typically prepay for their children's education, resulting in lower working capital requirements for companies like Curro. However, the capital-intensive nature of establishing and maintaining educational infrastructure presents inherent risks. Despite these challenges, Curro's strategic focus on expanding its educational offerings and improving operational efficiency positions it as a potentially robust investment, especially for those looking to capitalize on the growing demand for private education in South Africa and beyond.