A+ for enrolment growth
Tinashe Hofisi
#themes: enrolment and tuition fees
ADvTECH's FY24 results marginally exceeded our expectations. The SA education segment reflected resilience, with 4% enrolment growth in Schools (target: 3%-6%) and 7% in Tertiary (target: 5%-6%). Tuition fee inflation in SA Schools (5.5%-6%) and Tertiary (c. 7%) aligned with wage inflation (~6%). Tertiary throughput improved to 80% (from 78% in CY23), driven by improved brand perception and higher graduation rates. SA Schools maintained 83% capacity utilization, with new schools achieving profitability ahead of the typical 3-year J-curve. Rest of Africa (ROA) schools’ enrolment growth was 4% (target: 6%-7%) due to capacity constraints, but Crawford International School Kenya’s expansion is set to increase capacity in 2Q25E. Demand for the Cambridge curriculum supported 14% tuition fee growth. In our view, ADH remains an attractive play relative to peers due to its resilient and diversified portfolio.
Key results highlights: (1) Total revenue up 8% y/y, with resourcing down 7% due to fewer placements; (2) Operating margin expanded by c. 90bps y/y to 21% (SBGSE. c. 20.8%) with all divisions reporting margin improvements; and (3) NEPS was up 16% y/y to 201cps (SBGSE c. 199cps). DPS of 101cps was up 16% y/y with management maintaining dividend cover of c. 2x.
Steady enrolment growth. ADH has recorded SA schools’ enrolment of 4% in CY25 (Curro: -1%). We expect continued focus on rolling out mid-fee school brands at a slower pace due to economic conditions. We forecast enrolment growth of 4-5% over the short-to-medium term, with fee increases aligned with CPI to support enrolment growth and drive economies of scale. In FY25E, we expect operating margins at 20.9% (FY24A: 20.5%), reflecting gradual improvement.
Enrolment acceleration in sight. As capacity expands in ROA, we expect enrolment growth to accelerate to 7% in FY26E and FY27E. ROA organic enrolment growth in 2025 is 4% but 40% with the inclusion of Flipper International Schools (FIS), adding over 3,000 students. FIS generates annual pre-tax profits of R30-R35m (c. 32% operating margins, consistent with the existing ROA portfolio), we expect an uplift of 5c-8c to FY25E NEPS. FY25E operating margins (33.5%, up 110 bps y/y) are likely to improve more slowly relative to FY24A (up 240bps y/y) as fee increases moderate.
Tertiary enrolment acceleration despite university status policy delays. Enrolment is up 14% in CY25 (SDO: c. 10%) driven by lower-fee segments (Rosebank College, distance learning). This could result in a negative mix effect of 4%, with fee increases c. 5%-6%. We expect FY25E operating margins up 50bps y/y to 27.1% limited by investments in teaching equipment. Delays in university status persist despite progress on policy and criteria changes. Rosebank college university in Ghana is set to open in Sep-25, initially enrolling 1500 students, which we believe could potentially weigh on margins over 4QFY25E and into FY26E.
After taking into account double-digit enrolment growth in Tertiary and margin expansion in ROA, we now forecast diluted NEPS of c. 245c (previously: 222c) for FY25E and 277c (previously: 247c) for FY26E. We revise our fair value range to R39–R42 (previously R36–R39), offering a potential total return of 31%–40%, including a dividend yield of c. 4%.
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