EUR 26.36 For Business Accounts Only

CIRA EY | Resilient to blows amid global turmoil; Remain OW

Play defensive, against current uncertainties. CIRA offers better FY20e earning visibility (+c36% y-o-y) vs. our consumer coverage, given its ability to swiftly shift to remote learning, post the closure of schools and universities on 15 March, amid the COVID-19 outbreak. That said, we see no risk on FY20 tuition fees, despite market chatter of partial refunds. We raise our TP by c3% to EGP16.5/share to factor better-than-expected: i) higher education margins, on higher PTR, due to delays in teachers’ hiring for upcoming expansions, and ii) K-12 tuition fees, which more than offset the loss of c37% of bus fees and BUC’s summer semester (2.5% of revenue) in FY20e. CIRA’s premium valuation (FY20e P/E of 31.8x vs. peers’ 25.6x) is warranted, on its superior FY20-24e EPS CAGR of 27% and returns of RoAE of c23% vs. peers’ c13%.

Stable operations, despite short-term headwinds. Our FY20-22e sales CAGR of 23% stems from a: i) widening student base of c8%, on the launch of seven new faculties in BUC (+c9k seats), as well as four new schools (+c4k seats), and ii) c15% average tuition increase, on a favourable sales mix, thanks to launching higher price point faculties in FY21e (2.4x premium to CIRA’s tuition, first launched in FY20), as well as two international schools in FY22e (vs. FY23e previously). This comes despite slightly lowering higher education utilisation by c2pp to 55% in FY21e, on potential COVID-19 implications, likely impeding new enrolments, as well as delaying one school (893 seats) to FY22e (vs. FY21e previously), amid prolonged approvals.

Manageable FCF risk, with room to spur capex borrowing. Non-cash partial refunds of bus fees should have no impact on FY20e FCF, as CIRA collected 91% of the year’s tuition. However, an elongated admissions timeline for FY21e (on pushing exam dates) and/or offering lenient payment terms are likely to put CIRA’s cash flow in a tight spot, in our view, albeit for a negligible period in 4QFY20 (60% of K-12 and 70% of higher education of tuition is received in 4Q). That said, we are unconcerned, and expect CIRA to raise more debt in FY21e (1.2x ND/EBITDA vs. 0.1x in FY20e) to fund ongoing expansions, without maxing out its internally set ceiling of 2x EBITDA.

Limited risk on medium-term expansions. CIRA is on track to launch the six new BUC faculties and an international school in FY21e, with marginal risk of delay for the latter. The bulk of CIRA’s expansions (BUC’s branch in Assiut and new BUC extension to contribute c27% to the Group’s terminal top line) lying in FY22e and beyond are on schedule and currently in the design phase, with construction set to commence in 1QFY21. This implies a buffer of four months, if a stricter lockdown is enforced, as it takes c9-12 months for a project’s execution.