AdvTech loses its head

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AdvTech CEO Leslie Maasdorp and the company are parting ways after just seven months together.

Former CEO Frank Thompson, has stepped off the golf course at short notice to act as the interim while the board finds a replacement.

“I’m very saddened and disappointed that the board and I have had to part ways,” Maasdorp told Bloomberg. “I’m unable to provide any detail of the nature of the differences.”

Clean cut

Sudden changes in leadership are never a good thing, says Brian Pyle an equity analyst with Old Mutual Investment Group. “However if the CEO and board do not get along its far better to change now rather than a year down the line.”

Ideally the new candidate should have strong corporate finance skills, strong operational skills, a clear idea on how to embrace technology going forward and sense of how expand the group’s non-South African assets, he says.

“Executing on this strategy is no small task. The board must appoint someone appropriate.” Despite the turmoil, results for the year were not bad. Revenue increased by 9% to R1.9 billion, operating profit rose 16% to R256 million, but investment in the growth strategy constrained earnings per share to 7% or 41.2c per share.

The major acquisitions include Centurus Colleges (R712 million), Gaborone International School (R84 million) and the Maravest Group (R450 million). The latter marks AdvTech’s entry into the rapidly growing mid- and low-fee school space.

The group drew on its existing loan facilities to settle the purchase considerations except for Maravest which is still conditional and provides for settlement in shares.

Schools grew enrolments 5% and revenue 12%, but operating profit grew just 3% to R161.6 as many newer schools are not operating at capacity.

“AdvTech, with a R3.8 billion market value relative to Curro’s R11.2 billion, must realise that any aggressive new schools build programme will hinder heps growth even further,” wrote Anthony Clark, Vunani Securities small cap analyst in a research note. “Lots of new paper and debt will hamper earnings until the ‘J’ curve kicks in.”

The results are evidence the turnaround of the tertiary division succeeding. Revenue increased by 10% and operating profit was up by 75% to R84 million.

“Within the schools division enrolments are up 71%, and within the tertiary division they are up 21%,” Clark adds.

New benchmark

“This will increase at a faster rate in the years to come and we see it as a positive indication that the company is making progress with its strategy. We see 2014 as the new baseline from which performance can be measured.”

“The real indicators [of success] will be those in 12 to 24 months time.” By lunchtime yesterday shareholders had recovered from the shock of the CEO’s departure and half-cent rise in dividend to 26c and the share price advanced 0.89% to R9.10.

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