Rampant Curro taps market

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Investors in private school group Curro should not be dismayed or surprised at its plans – outlined in its latest results – to tap the market for another R749 million through a rights offer.

This will be the fifth time in its four-year existence Curro is approaching shareholders, but it has always said it will need the market to repeatedly fund its aggressive growth plans.

In terms of the offer, shareholders will receive the right to acquire one additional Curro share for every 11 shares held at R25 per share. This is a 23% discount on the 30-day average selling price.

All in the family

“There is no doubt that this offer will be taken up,” says Anthony Clark, small- and mid-cap analyst with Vunani Securities. “This company, like PSG, is mostly owned by friends and family – PSG, Thembeka Capital and management – and they will follow their rights. Blue chip institutions like the PIC (Public Investment Corporation), Investec and Sanlam only own about 10%.”

Curro raised R322.4 million at listing when it sold shares at 400 cents per rights offer share;

R344 million in 2012 when it sold shares at 600 cents; R606 million in 2013 on shares priced at 1 200 cents; and R590 million last year on shares priced at 2 000 cents.

The capital has been put to good use. The group has expanded to incorporate 42 campuses with over 36 000 learners and wants

80 schools by 2020.

Importantly, it is already massively profitable and has reported its third year of profits. Headline earnings increased by 51% to R55.5 million from R36.8 million and headline earnings per share by a slightly disappointing 38% to 17.7 cents from 12.8 cents.

This follows a sharp increase in revenue by 52% to R1 billion and earnings before interest, tax, depreciation and amortisation (Ebitda) by 68% to R191.3 million.

Cash generative

Capex plans for the year are as aggressive as ever: The group plans to invest about R600 million on the expansion of existing campuses; develop three new Curro schools at Waterfall Estate (Johannesburg), Sitari (Somerset West) and Hillcrest (Durban); develop a new site for the Meridian Pretoria school and expand the Cosmo City campus.

It also plans to develop three new Curro Castles in Johannesburg; invest about R250 million in further land banking of various key sites; and it remains open to potential acquisitions.

The scale of activity and rising debt (total liabilities have risen from R1 billion to R1.8 billion in the past year) should not make investors nervous, says Clark.

“The company is increasingly cash generative – net cash generated from operating activities increased by 135% to R246.7 million. By 2016/2017 they will be funding growth from internal resources.”

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