Listed educational group, ADvTech Ltd (code: ADH) put out a commendable trading statement for their H1:21E period. The Group—that owns Crawford International, Varsity College, & Rosebank College, amongst others—sees all its divisions delivering an increase in operating profit.
Perhaps more importantly, if one-offs are excluded, the ADvTech’s profits are expected to be between 28% to 33% higher than H1:20, or between 53.5cps and 55.6cps. These earnings stand up well when we compare it to the Group’s H1:19 period where equivalently normalized earnings came in at 42.5cps, thus seeing the Group generating “clean” growth of +28% versus a pre-COVID base (the pandemic/lockdowns have created messy base effects, thus I find myself comparing everything against 2019 equivalents as foundation).
A defendable approach to investing is to seek out businesses that fill the gaps left by poor public sector services. From private healthcare services (see ‘Discover the other healthcare stock option’) to private security-related products (see ‘Trellidor – building up to a rally’), these businesses often target large total addressable markets that can be quite inelastic and often quite profitable.
Education—both primary and tertiary—is one such market and ADvTech has done well building a substantial group here, along with Curro (code: COH) and Stadio (code: SDO).
All these groups have their eccentricities: ADvTech holds a portfolio that includes both mature schools and tertiary offerings while having a strong distance learning platform. Curro is a pure schooling play—lower-end fees & offering than ADvTech’s positioning—and many of its schools remain with a lot of excess capacity to be able to absorb future student growth. Finally, Stadio—originally spun out of Curro—is a pure tertiary play but at an early-stage with a lot more building, ramping-up and (hopefully) delivering on promises to come.
While Stadio has not yet updated the market with their H1 results (I expect this shortly), Curro has done so and we can compare theirs against what ADvTech put out.
Curro’s last eighteen months have been understandably volatile albeit student numbers are +7% y/y, and the Group expects its H1:21E profits per share to roughly halve. Per share measures of profits use the number of issued share and Curro raised R1.5bn in September 2020 by issuing new shares that now dilute these results by a whopping 42%. Rolling this back to an implied mid-range headline earnings (before dilution), though, and Curro looks to be about doubling their H1:20 headline earnings of R56m to c.R116m (unfortunately—and this is why I do these 2019 comparisons—Curro is actually down -43% against their H1:19 headline earnings of R206m! Not great…).
Circling back to ADvTech, if we do the same here, the Group’s mid-range implied H1:21E headline earnings came in at c.R301m or +39% y/y against H1:20’s comparable. Likewise, the Group is +29% against H1:19’s headline numbers.
Like I said, a (very) commendable result.
In closing, education is a great space to be in, though that fact hardly guarantees a successful investment here (just ask the Pembury shareholders…). Furthermore, despite arguments for its maturity, ADvTech has managed to navigate the pandemic and lockdown environment without material dilution to its shareholders and growing profits against even the pre-COVID base. All in all, this Group and its latest update certain highlights the underlying quality inherent here.
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