EUR 21.97 For Business Accounts Only

CIRA EY | A front-runner that ticks all boxes; Remain OW

Solid footing warrants an OW. We raise our 12M TP by c12% to EGP18.5/share, as we rollover our DCF, on a c3% higher EBITDA over FY21-29e, factoring: i) stronger-than-expected FY21e admissions, mainly for BUC (+8% vs. previously), thanks to CIRA’s cutting-edge offerings, including lucrative partnerships (University of Arizona’s agreement to extend its e-learning programmes), reinforcing its position amid the fallout, ii) c3% higher average pricing for higher education, on a better-than-anticipated impact of the premium Faculty of Medicine (launched in Feb-20), and iii) a c17% cut in FY21-25e capex, on lower guidance for BUC extension’s construction costs. This should drive our FY21-25e earnings CAGR of c30%, on a better mix. CIRA’s premium valuation (FY21e P/E of 33.0x vs. peers’ 21.2x) is warranted, in our view, on its solid EPS growth and RoAE of c21% vs. peers’ c15%.

Solid demand dynamics bode well for growth, as expansions kick-in. We look for a solid FY21-25e revenue CAGR of c22%, driven by a c9% p.a. hike in students, on the: i) rollout of three new faculties at BUC by Sping-21 (+c2.2k seats), ii) the ramp up of the three new faculties launched in Sep-20 (+c4.8k seats), iii) launch of Assiut’s phase I in FY22e (began construction in Oct-20), iv) completion of phase I of BUC’s extension by FY24e, and v) seven schools (first was launched in Sep-20). This will yield a revenue/student FY21-25e CAGR of 12%, on growing contribution of higher education segment, with higher average tuition fees (2.8x above K-12).

Margins to normalise at solid levels. We see EBTIDA margins expanding 80bps, on average, over FY21-25e to 48.2%, normalising at a lower 47.4% by FY30e. We attribute this to rising contribution of high-margin higher education (c63% in FY20), and in turn, a better sales mix, despite foreseen margin pressures from: i) ongoing expansions stretching until FY25e, ii) launch of four lower-margin int’l faculties in BUC’s extension by FY24e, and iii) competition. We look for an average 2.2% p.a. EBITDA margin expansion for K-12 to 26.8% by FY25e, without surpassing historical levels of c33%, on rollout of lower-margin int’l schools (+two by FY22e).

Tuition fees’ hike freeze a key watch factor. We uphold the 12% y-o-y hike in K-12 average tuition fees in FY21e, backed by a better sales mix, as we downplay the news on potentially freezing tuition hikes in private and int’l schools (decision to be determined by second semester; 7% already implemented by CIRA). The downside risk, in case of implementation by the Ministry of Education, would be an EGP39mn hit to K-12 top line (3.5% of second semester's tuition), implying a c6% cut to our valuation.