Curro with another acquisition!

This morning Curro announced a R185mil acquisition of Woodhill College and Woodhill property. Now this is a company we have not really spoken about it before but it seems to have quite a lot of potential and definitely falls on our radar. So in my message today I'll cover this acquisition and have a closer look at the company as a whole. Hopefully I'll learn as much as you do.

If you are not aware, here is a brief description of the company from their website. "Curro Holdings Limited, the parent company of all Curro Private Schools, is the market leader in the provision of affordable, quality private school education in South Africa. The company's role is to establish new private schools and to back each school with a solid management team experienced in the field of education. This creates the sustainability needed to ensure an ongoing level of excellence in teaching the leaders of tomorrow."

I think it is quite obvious at first glance that our country and economy could do with and support a company like this. Their biggest competitors will constitute independent private schools, public sector schools and Advtech who own brands such as Crawford, Varsity College and Vega amongst a whole host of other institutions.

But where is Curro's niche? Curro are more focused on providing affordable private education whereas the others are all geared towards wealthy folks.
That is their niche and it is also where our authorities are desperate for help. Trevor Manuel stated that education was one of, if not the fundamental ingredient to his national development plan. Here are a few stats that show the shortage of education we currently find ourselves in.

Average years of schooling for adults in SA is 6.1 years, that is half the time it takes to get a Matric. 18.5% of total government spend goes to education, one of the highest percentages in the world. Only 57.2% of children of the relevant age end up enrolling at the secondary level and out of those only 15.2% enrol for tertiary education. In 2010 the Matric pass rate was 67.8% with only 23.5% getting a university entrance. Astonishingly there were 18 schools last year who had a zero percent pass rate. Only 2.8% of our education system is private. The demand is there and with a growing middle class there will be more and more people being able to afford their product, remember education is a priority.

So what about the company themselves? The market cap sits at R1.275bn so this acquisition is fairly significant. Another positive is that they are also buying the whole Woodhill college property valued at R100mil so there is a nice property underpin. From the interim results in June this year property plant and equipment was valued at 381 million. After the acquisition we should see property at about 40% of the market cap.

For the 6 months the company actually made a loss. This was because they are on a buying spree going from 5 schools in 2010 to 12 schools this year. Learners increased from 3083 to 5519. Capital expenditures on the properties either already held or acquired increased to R280mil from R128mil last year. Much of this debt has been funded by a capital raising they did in July this year. The business is similar to a hotel which requires significant capital investment and then a large fixed cost with salaries, electricity and water etc. As learners reach a certain critical mass, revenue will increase disproportionately to the corresponding costs. So I guess you have to rely on that fundamental demand for their services that I mentioned earlier.

One last positive for the company is that The PSG Group own 63.1%. I say this because Jannie Mouton has a great track record in finding these kind of companies and building them into industry leaders ala Capitec. We will keep an eye on this one but at face value it looks like a good growth story.