AdvTech 6M numbers - Tertiary leading the way

28-AUG-18

Education company AdvTech is in the Vestact recommended portfolio. They released their six month numbers yesterday. You might recall that they uncovered an accounting fraud last year which disrupted their results and made comparisons with the corresponding period in the prior year rather tricky. The company has cleaned up the accounts and taken legal action to try to recover some of the money stolen, so we can put this incident behind us. On a normalised basis, profits increased by 8%.

Carrying on the trend from last year, their Tertiary division is the shining star. The division saw Revenue increase 12%, mostly due to organic growth, and thanks to margin expansion operating profits increased by 24%. This division was the dog with fleas a few years ago, but due to increased demand and a renewed focus from management, things have turned around. We like the diversification of owning an education company with both a schools division and a tertiary division. State-run universities are full, and the demand for additional options is huge.

The Schooling division continues to face some headwinds. A few high-end families are emigrating, and others are trading down from expensive schools to 'mid-fee sector' schools. Even though the division increased revenues by 24%, they only grew profits by 5%. In September they will open the doors of a new Crawford International School in Nairobi. Kenya could be significant for them in the future. Exciting times!

For the first six months, the company declared a dividend of 15 cents a share, which is the same as last year. They have big capital expenditure plans ahead. Over the next three years, they plan to spend around R1.3 billion. Interestingly, the dividend will cost the company R105 million, and the taxes they paid in the first 6-months amounted to R108 million. A debate for another time, is that ratio fair?

We like the education sector in South Africa, we like the diversity that AdvTech provides, and we like that the company pays a dividend.