Stadio, the private higher-education provider, released a trading update in early March.
The update detailed a 28% increase in core headline earnings at the midpoint for the year ending December 2024. The full-year results were due to be released on March 24. Thus, IM readers will have received all the details of the results by now.
However, we want to look more broadly at Stadio as an investment proposition. Stadio offers third-level programmes in person and distance learning to students across South Africa, having expanded through the acquisitions of the Milpark Education and AFDA education businesses and also by rolling out courses under its own Stadio brand. However, the story is similar to many other facets of modern-day South Africa, where need is greater than supply.
With the huge demand for quality tertiary education, the public system has been constrained by a lack of capacity and underinvestment over the past 30 years. We have a situation where the public system has the capacity for just over 200,000 students today. However, roughly 335,000 students achieve bachelor passes, leaving a gap of about 135,000 students annually who qualify for third level based on their matric marks but can’t secure a place at a public university. Stadio is trying to fill this gap.
Currently, student numbers are just over 50,000
With this gaping chasm between supply and demand, Stadio should be offering its programmes into a ready-made market, and this has been the case. Student numbers have grown strongly over the past few years. Currently, student numbers are just over 50,000. Given the system’s supply and demand gap, Stadio should be well positioned to increase student numbers even further.
We have recently seen financial struggles at other providers in the third-level space, which should also benefit Stadio over the longer term.
Stadio is building a new modern campus in Durbanville and making significant investments in its courses and curricula, allowing it to offer prospective students a wider array of courses. Getting the accreditation for all these courses can be arduous but Stadio has been making slow and steady progress, with nearly 100 accredited programmes now offered.
Once the accreditation is in place, it is a case of filling up these courses to capacity and repeating them year after year. The variety is also beneficial for retaining students who wish to switch courses, such as the BCom student who, after year one, wants to switch to a BSc in accounting, for example. These students are still finding their way in life, after all.
However, like its former parent business Curro, which Stadio was spun out of in 2017, the group cannot escape the economic realities of the market. Both Stadio and Curro have noted that bad debts and delayed payments are challenges that soak up more management time than they would like and have affected financial results.
While the demand is plain to see, Stadio faces a challenge in providing the service at an affordable price without choking off demand, but at which it can still make a reasonable profit.
Just look at the latest results from Curro. Student numbers have been broadly flat over the past few years despite a similar demand for quality high school education across a country plagued by substandard government schools. Perhaps Curro has reached the price point that restricts demand at this stage, but only time will tell.
Stadio is still early in the growth phase of its business. New courses and new students are still entering the system, so volumes can drive future revenues. With the rise of the knowledge economy, the modern workforce in all sectors is now demanding a higher level of education and training. For most modern jobs, a third-level qualification is a prerequisite for getting in on the ground floor.
This rise of knowledge workers within the economy is a strong macro tailwind for Stadio’s business, especially since it can craft and create courses, with just minor tweaks around the edges, more aligned with industry needs rather than the traditional universities, which have curricula and classes that have been in place for decades.
Stadio is at an interesting point in its development. The business remains debt-free, albeit with a R100m facility available should it be required. It is profitable and generates positive cash flows. It has gained enough scale and brand awareness to fully pursue its growth plans and service the existing market demand.
Given the strong run-up in the share price over the past nine months, any market-induced weakness in share price could prove an attractive buying opportunity.
