EUR 129.59 For Business Accounts Only

TALM EY | An education anchor in the making; Initiate at OW

Initiate at Overweight, with 12M TP of EGP8.90. Taaleem built a solid track record for university management, since it took over Nahda University in Beni Suef (NUB) in 2015, Upper Egypt’s first private university (60% market share, c3% on the country level), revamping and expanding its offering (tuition 15% below peers). The stock trades on a FY22e P/E of 14.2x, well below peers’ 22.2x, despite being strategically located in an underserved region (two private players; 4.6% of private enrolments, as of FY20), with significant demand, paving the way for NUB to expand its capacity and ramp up enrolments. Taaleem plans to establish an adjacent extension, adding three faculties to reach 11, and boosting capacity by 27% to 13,995 seats by FY25e.

On path to bridge supply/demand gap. Public universities capture c70% of new enrolments, encouraged by an 85% tuition subsidy. This maxed out the sector’s capacity, ballooning students/faculty (>3.7x private), with lagging investments, paving the way for entrance of private players. Although demand on private universities has been on the rise, signalling pent up demand, new enrolments’ contribution is minor, at c5%, capped by limited capacities in affordable options, leaving some opting for enrolling at institutes (c231k students vs. c45k for private).

Poised for growth, with an offering edge. We are positive on Taaleem’s outlook, supported by: i) NUB’s solid enrolments (+12.5% over FY21-25e; 60% utilisation in FY21), distinguished by its revamped quality in an underserved area (88% from Upper Egypt), and ii) a focus on high-margin life sciences faculties, NUB’s edge, boasting a favourable mix, on higher price point (87% tuition margin vs. others’ 68%). Launch of Medicine in FY20 was successful (largest private intake quota), reinforced by MUVI* partnership, given the scarcity of high quality offerings (only 8% enrolled in private).

Lucrative margins, with solid balance sheet. Ramping up utilisation, with a better mix, and in turn, scale benefits, should sustain margin improvement. We see adjusted EBITDA margins rising to 53.5% by FY21e and 59.9% by FY24e (vs. 52.9% in FY20 and 46.5% in FY18). That said, FCF should spur (FY21-25e CAGR of 46%), despite rising capex of campus extension, further backed by the cash generative nature of the business (c49% of tuition received in 4Q). With 1.4x EBITDA in cash, we see room for Taaleem’s plan to replicate NUB’s success in Cairo, by establishing a c9k seat campus via a 60:40 JV with PHD (not accounted for, pending approvals).