Curro Holdings results, smaller loss

Yesterday we had 6 month results from Curro one of my favourite stocks but wow has the ride been wild. How is this for some share price moves? The stock listed at 550c in June 2011 and closed at 799c on the day, it then fell all the way back down to 550c before starting its upward surge. It reached as much as R20 this month before pulling back to R16 a couple of days ago. After these results it is now sitting above R18 and a market cap of R4.2bn.


So how did the numbers look? Clearly the market liked them as the stock shot up over 10% in 2 days but is it sustainable? Revenues increased 103% to R161 million, learners increased 125% to 12497. In 2009 the school had just 2059 learners. EBITDA increased 226% to R18 million while earnings per share still came in at a loss, -1.8c compared to -9.6c. It looks like we may see some profits for the year end.


But these numbers look awfully small for a company of R4.2bn. Assets which of course includes their schools comes in at just over R1bn. The biggest question is whether the company has the potential to make enough money to justify the share price. R18m EBITDA is clearly not enough at this stage. It seems to be a capacity issue. This Moneyweb article got the following from the company.


"At this point not many of these schools are profitable. Curro expects a school to become profitable after three years of operation. Currently just two schools are operating at almost capacity (between 75% and 100%); seven are operating at between 50% and 75% capacity; nine at 25% to 50% and four are operating at below 25% capacity. Earnings per school are not disclosed but at year end Curro disclosed that one school was operating at almost full capacity, earning R9.2m before interest and tax. At the same time (last December) six schools were operating below 25% capacity, incurring losses of R3.3m."

So do you believe they will be able to fill this capacity? I believe the answer is a resounding yes and that is why I like the company. The demand for their product due to the failure of the state will increase more in more. I think even at this stage the demand is so high that we don't even need an economic boom to fill this capacity. Opportunity's are also flowing as many small private schools lack funding and require consolidation. Chris vd Merwe had this to say in another Moneyweb interview.


"What we clearly see in the marketplace, Alec, is that I think we underestimated the number of opportunities that we have to develop these Curro schools. Naturally we reassessed the situation and now we are of the firm belief that the target of 40 by 2020 is too small, and we can even up that to 80 schools."


And this is why the share price is where it is. Opportunity to grow by acquisition, willing funders (remember the Education Impact fund) and a massive gap in the market for a product that is an absolute priority. Short term I think the price will remain volatile but long term I would be happy to hold.