Curro shares plunge as earnings growth slows
Group says it had to restate its previous set of interim results to align them with new accounting standards, revising earnings slightly upwards
Curro's share price fell as much as 13% on Tuesday afternoon, to its worst level in six years, after the private education group said earnings growth slowed significantly in the six months to end-June.
The company, which operates schools and colleges in SA, Botswana and Namibia, has joined a list of at least 30 JSE-listed stocks that reached new 52-week lows in recent trading days. SA-focused companies are battling to grow earnings amid the country’s economic malaise.
Curro said half-year headline earnings per share (HEPS) rose between 41% and 47%. But after stripping out a once-off deferred tax liability adjustment of R53m, HEPS increased 3%- 9%.
In the 2018 interim period, HEPS grew 22%.
“In current challenging trading conditions, the company was able to increase revenue and sustain its … margins at levels achieved in the previous corresponding period,” Curro said on Tuesday.
The company also said it had to restate its previous set of interim results to align them with new accounting standards. Earnings were revised slightly upwards. Curro said it would probably publish its results on August 14.
Shortly after the announcement, Curro’s shares were 13% down at R18.01, the worst level since August 2013. In late afternoon trade, the stock was at R18.27, an 11.7% fall on the day.
Independent analyst Anthony Clark said that since Curro’s stock was “highly rated” by the market it was being punished for the apparent earnings miss. But a slowdown in earnings was expected, as Curro was having to spend large sums on building new high schools to cater for pent-up demand, Clark said.
That meant the company was nearing peak debt and higher interest costs were a drag on earnings. But debt should reduce once the capital expenditure programme was complete.
Clark said the group had done well in the primary-schools segment, but did not yet have enough high schools to retain those learners.
He said rival operator Advtech was also expected to report disappointing numbers as the company had to keep education fees in check to compete.
Excelsia Capital analyst Mark Narramore said Curro’s update missed expectations “and one could expect some marginal downgrades”.
“The share has fallen a lot but it’s not cheap yet compared to its current profits, and debt becomes more of an issue if earnings begin to stagnate,” he said.