With Curro likely to transition from a listed for-profit company to an unlisted nonprofit company, all eyes are on the financial viability of the education sector.
It’s important to emphasise that there are many different models in the broader education sphere, with Curro having taken the hardest route of trying to carve out a market between higher-quality government schools and “cheaper” private schools.
History has shown us that though this is technically possible, it’s probably more suited to a social enterprise model (profitable, but not necessarily an adequate return on capital for purely capitalist intentions).
Over at AdvTech, the model is having no such difficulties. This is because its schools division has carved out a market position that focuses on upmarket schools, specialist schools or schools in geographies where there is less competition among private schools — for example, in the rest of Africa. Enrolment numbers show encouraging growth, something Curro haven’t been able to get right in recent years. AdvTech is running at 83% of current capacity and 71% of projected capacity, a measure of how much development potential it has in its schools.
The company also has a strong tertiary division, a business that is capable of generating good returns (as arch-rival Stadio has indicated). If you’re going to try to make money in education, this is the way to do it.
AdvTech’s third division is the odd one out, as a resourcing division makes little sense alongside an education business. I’ve been beating this drum for a long time, but there’s no sign of AdvTech either selling or separating this business out. If you want access to the education businesses in AdvTech, you have to be willing to own a resourcing business too. This probably isn’t doing the valuation multiple any favours.
The group performance is appealing, with revenue up 10% for the six months to June 2025 and headline earnings per share up 15%. The interim dividend is up 18%, so the cash quality of earnings is strong.
The local business is marginal at best, reflecting the overall stagnation in the South African economy
Digging into the segmental contribution reveals an important story about where AdvTech makes its money, with the tertiary division as the star with 41% of revenue and 51% of operating profit. This tells you that it runs at a higher margin than other parts of the business. Schools South Africa contributes 37% of revenue and 36% of operating profit, while Schools Rest of Africa is good for 6% of revenue and 8% of operating profit (again, strong margins visible there). The resourcing division is again the oddity, with a revenue contribution of 16% and a profit contribution of just 5%. It runs at a margin way below the other businesses.
Another clear divergence is in the revenue trend. Schools Rest of Africa is a fantastic growth engine, with revenue up 31%. Schools South Africa grew revenue by 11% and the tertiary division was up 13%. As you’ve perhaps guessed by now, the resourcing division headed in the wrong direction, with revenue down 5%.
Perhaps the most fascinating thing about this division is how dependent it is on the rest of Africa. Of the R50m in divisional profit for this period, only R2m came from South Africa. The local business is marginal at best, reflecting the overall stagnation in the economy. The rest of the continent offers an opportunity to participate in growth in frontier markets, but there’s no shortage of risk and complicated look-through exposures.
As a case in point, the closure of the US Agency for International Development by the Trump administration led to 10% of the client base no longer having access to funding, which means the last thing they would be doing is hiring more people. In this context, the resourcing division put in a resilient performance, but that doesn’t answer why AdvTech still owns it.
Stadio currently trades on a p:e of 28. AdvTech is on roughly half that, at 14.5. Sure, the schools division will be part of the reason, as Stadio is a pure-play tertiary business, but perhaps the complexity of the resourcing division is a big driver.
Whatever the reason, the market isn’t giving AdvTech any credit for the recent earnings growth. The share price is up just 2% in the past year despite strong growth in revenue and earnings. The market is looking for a catalyst, and finding a more suitable owner for the resourcing division should be on the list.
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