Curro rewards patient investors with a maiden dividend
The JSE-listed private school group has given back to shareholders after years of requests for more money via rights issues
After years of being asked for more money to pay for private school group Curro’s acquisitions, shareholders are getting their first dividend.
Curro declared a maiden dividend of 12c per share in its results for the year to end-December, which some analysts said indicated that the group could now fund future growth through its cash generation, rather than through through shares.
Curro has been pursuing an aggressive growth strategy, and has set itself a target of owning 80 independent schools by 2020,will accommodate 80,000 pupils. At the end of its 2018 financial year the company had 68 schools, and 57,000 pupils.
The company's results were quite credible given the tough domestic market, said independent analyst Anthony Clark. Curro looked well positioned to grow both cash flow and profitability, he said.
The group segments itself into two, its flagship Curro schools and Meridian schools, of which it owns 65%. Meridian’s pupil numbers declined by 4% to 9,313 during the period while Curro’s grew 16% to 41,992, helping the group’s overall pupil numbers grow 12%.
Those schools falling under the Curro brand grew revenue 22% to R2.2bn while Meridian’s remained flat at R274m.
Net profit grew 20% to R242m and headline earnings per share (HEPS) grew 25% to 60.1c. The dividend was paid out of the company's income reserves, and constitutes 20% of the company's HEPS.
“The fact that Curro is confident enough in its cash flow that it can pay a maiden dividend means it is highly unlikely there will be any more cash calls,” said Clark.
“Many corporates would kill to have 20% growth in HEPS in an economy like this,” he said.
The dividend, however, remained relatively modest when considering Curro's results, said Mergence Investment Managers equity analyst Nolwandle Mthombeni.
The company still had high levels of debt, and would need to balance de-gearing its balance sheet with paying out future dividends, in an environment where enrollment growth is anaemic, said Mthombeni. Gearing refers to the ratio of a company's debts to its equity.
“I don’t expect a material increase in the [dividend] payout ratio in the near term, so investors will have to continue to be patient,” she said.
Curro's finance costs during the period grew 62% to R193m, while long-term debt increased 21% to R2.85bn.
The company's capital expenditure during the period was R1.7bn, including R416m for the construction of six new campuses.
The company had also expanded its offering, including through the opening of a new tech-focused school model during the period, said Curro CEO Andries Greyling.
Established in 1998, Curro is the leading independent school provider in Southern Africa. Its share price closed 9.35% higher at R27.12, having added 6.31% so far in 2019.
Correction: February 14 2019
An earlier version of this article incorrectly referred to Anthony Clark as an analyst with Vunani Securities. He is in fact an independent analyst.