Olympic glory. The biggest matric class. The best results ever. The Curro presentation for the year ended December 2024 is full of exciting news. But where are the kids?
In fairness to Curro, its disclosure is solid. (As was the silver medal that matric student Bayanda Walaza won as part of the men’s 4x100 relay team in Paris.) The results deck includes a great slide that shows the reasons for pupils leaving. For example, there were 4,931 matric graduates at the end of 2024 — in corporate incentivisation land, these would be called “good leavers”.
A total of 1,978 children left after completing pre-primary (grade R) or primary school (grade 7), which definitely isn’t what investors want to see. After all, schools fill up from the bottom. Another 1,986 pupils left due to relocation or emigration, which reflects both the exodus of the South African middle class and the scale of semigration. Finally, we get to “financial and other leavers” as the largest bucket of all, with 6,760 pupils.
This is the bit that is most concerning, particularly when you look at the numbers and realise that Curro is pushing price increases into a school footprint that is far from full.
The decrease in total enrolments from February 2024 to February 2025 is 1.5%. That doesn’t sound terrible until you remember that the incremental cost of an additional learner is very low, so a dip in capacity utilisation is damaging.
The total number of enrolments isn’t the most concerning part of this story, though. That honour surely belongs to the difference between the February 2024 intake and the intake one year later. The number of new pupils has fallen 6.5%, a problem that can very quickly become a crisis. Again, credit to Curro for the transparency of the disclosure here — many companies could learn from this.
Given the challenges in filling the existing schools, it’s not a surprise to see that capital expenditure is much lower than it was a decade ago. Between 2015 and 2019, Curro invested a total of R6.4bn in capex and generated R1.7bn in cash from operations. Between 2020 and 2024, capex was R4.1bn and cash from operations was R3.8bn. You can see the model here, with long payback periods as schools reach critical mass. In each of 2023 and 2024, cash from operations exceeded capex.
This is the crux of the investment thesis: at some point, shareholders sit back and enjoy the fruits of a huge capex programme over many years
This is the crux of the investment thesis: at some point, shareholders sit back and enjoy the fruits of a huge capex programme over many years. One would hope that earnings before interest and tax (ebit) margins would also move higher over time, but this is where the capacity utilisation becomes a problem.
Ebit margin was 18.2% in 2024, having recovered since the pandemic but still below the 2018 level of 18.9%. If the schools aren’t filling up, then the only way to offset the inflationary pressures of running a school (and there are many) is to raise prices. Tuition fee increases for 2025 are an average of 5.5% per learner. That’s right on the cusp of being margin dilutive, particularly if Curro suffers a reduction in enrolments over the course of the year. For context, cost pressures in 2024 led to a 6% increase in staff costs and an 8% increase in facility costs.
But what is the realistic alternative? With affordability as the largest reasons for children leaving, we can safely conclude that there is price elasticity of demand among parents. Based on my own experience of looking at schools, Curro doesn’t always offer a really compelling story relative to some of the government school options, with the pricing being too close to premium private schools and out of reach for most families. My anecdotal experience is almost irrelevant here; the numbers speak for themselves in terms of lost enrolments.
With the post-Covid recovery having continued in 2024, headline earnings were up 13.4%. That’s a strong performance when viewed in isolation, but it tells you nothing about how the next few years could play out if enrolments do not improve. Curro’s vision is to “make independent school education accessible to more learners” and that talks directly to affordability. Even without the feel-good corporate stuff, basic supply and demand tells us that something is wrong when the schools are far from full and yet pricing increases are causing people to leave.
It would be a brave decision, but perhaps it’s time to stomach lower fee increases and try to solve the pupil deficit. I’m sure Curro has had clever people do this maths many times already. I’m less convinced that the clever people are giving the right advice.
The share price, down 22% year to date, tells you what the market thinks of the current approach.
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