Avior Capital Markets - Curro Holdings (1850) Curro | Relatively defensive

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Avior Capital Markets

David Talpert

Curro | Relatively defensive

Despite weak economic growth, we expect Curro Holdings (COH) to deliver earnings growth of 22% for H1 '19. The growth is due to increased capacity utilisation and expanding margins as schools mature. In our view, schools are defensive as consumers prioritise private education ahead of discretionary expenditure. However, net student growth at COH has slowed due to financial pressure or emigration. We expect COH to grow earnings at a 25% CAGR over the next four years.

10/07/2019 12 EN

Underlying

Curro Holdings

Curro Holdings Limited is engaged in the provision of independent schools and education services. The Company develops, acquires and manages independent schools throughout South Africa. The Company's segments include Curro and Meridian. The Curro segment offers independent education and ancillary services. The Curro segment also includes Select Schools, Curro Academy Schools, Curro Castles and Teacher Training College. The Meridian segment offers independent education and ancillary services. Curro schools consist of Durbanville, Langebaan, Hazeldean, Helderwyk, Hermanus, Serengeti, Nelspruit, Heuwelkruin, Embury, Hillcrest, Bloemfontein, Krugersdorp, Rosen Castle, Curro Castle George and Curro Academy Pretoria. Its ancillary services include boarding facilities, aftercare centers, cafeterias, school transport and activity centers. The Company provides education services to approximately 42,000 learners in over 110 schools across South Africa and Namibia.

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ZAE000156253 Johannesburg Stock Exchange South Africa

Provider

Avior Capital Markets

Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.

Our research quality is consistently recognised in local and global surveys, with 18 analysts currently rated in their respective sectors (FM 2017). Value add through in-depth, innovative, high quality and consistent research with comprehensive underlying fundamental modelling supported by regular analyst and roadshow interactions.

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Analysts

David Talpert

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Curro | Cutting capex

Despite reporting a slowdown in recurring HEPS growth to 7% y/y, Curro Holdings (COH) reported strong operational results. Revenue increased by 19% with EBITDA increasing by 21%. Management decided to reduce the capex pipeline and focus on increased capacity utilisation. Thus, we believe the move through the j-curve will accelerate. The business model relies on increasing capacity utilisation; fewer new schools will allow aggregate occupancy levels to increase. We remain positive on COH's potential to generate free cash flow and expect a four-year HEPS CAGR of 20%.

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Curro | Relatively defensive

Curro | Cutting capex

1 director sold

Tiger Brands | ESG | Pressed to execute

SA Investment Strategy | Review of January 2020 for SA investors: Coronavirus weighs on the ZAR

SA Banks | Low credit risk in commercial property | Time to buy SA banks

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