EUR 35.15 For Business Accounts Only

In an expansionary mode; Remain Overweight

Expansions spree warrants TP upgrade. We raise our TP by c10% to EGP16.0/share, factoring: i) phase I of BUC’s extension (+4k seats), ii) BCCIS’ acquisition (+924 seats), iii) three additional schools (+c3.8k seats), and iv) DCF rollover. This should drive our FY19-25e EBITDA CAGR of 28% (vs. 23% previously), along with assuming c2% higher average tuition on a more favourable sales mix and 30bps lower EBITDA margins over FY20-28e. CIRA’s premium valuation (FY20e P/E of 33.6x vs. peers’ 26.7x) is justified, given its long-term growth potential (FY19-25e EPS CAGR of c31%), supported by its solid track record and superior higher edu. margins (60% vs. 38% for global peers).

Beneficiary of improved segmental mix. The: i) rollout of seven faculties, to be completed by FY21e (vs. four in FY20e and three in FY21e, previously), ii) launch of Assiut’s phase I in FY22e, and iii) completion of phase I of BUC’s extension by FY24e, all on higher average tuition fees on new intakes, should raise the segment’s total capacity 2.5x to c45k seats by FY24e. This should grow revenue contribution from the high-margin higher edu. segment to 65% in FY24e vs. 52% in FY19, where CIRA enjoys a remarkable FY19 EBITDA margin of c60% vs. 24% for K-12. We expect a flattish FY20-21e EBITDA margin of c43% for CIRA, reflecting higher opex on expansions and BCCIS’ subpar EBITDA margins (9.2% vs. 25% for CIRA in FY20e).

Opportunistic expansion an upside, albeit likely engendering a funding gap. CIRA plans to invest EGP6.4bn, of which we incorporate EGP3.1bn over FY20-24e to be financed via debt and internally. CIRA mulls investing another EGP3.3bn to grow its footprint in the higher edu. segment, through: i) phases II and III of BUC’s extension (c20k seats), ii) a university in Red Sea governorate via a JV with Orascom Development, and iii) a sports facility and conference hall in BUC. Should the company pursue with the latter, this would indicate a funding gap of EGP3.2bn, on our numbers. That said, we flag a potential funding mix of: i) raising debt (FY20e net debt/EBITDA of 0.1x implies a buffer to raise debt by 3.3x, within management’s ceiling of 2x EBITDA), ii) monetisation of unutilised non-core assets, and/or iii) raising capital.

Regulatory approvals remain in unclear. CIRA’s Assiut land was formally granted by the government. For academia, the company plans to submit for presidential approval by Feb-20, leaving at least a year and a half ahead of the anticipated launch date in Sep-21 (c71% of FY25e sales). Given CIRA’s reliance on a complex regulatory system, any delay in approvals and/or adverse regulations may impede our valuation.