The ABCs of Investing in South Africa’s Private School Sector
We’ve all heard the adage, “Education is the future’s key.” But have you ever pondered education as the secret sauce to your investment portfolio? Let’s dive deep into an off-the-beaten-path opportunity – investing in South African private schools.
The Rise of South Africa’s Private Schools
In South Africa’s educational landscape, private schools are the fresh-faced newcomers. Propelled by an ever-increasing demand for quality education, these institutions are flourishing, serving as educational havens for the burgeoning middle class. South Africa currently has 2,154 independent schools, with an impressive 632,443 learners enrolled. The playground is ruled by four main players – Curro Holdings, ADvTECH Group, Reddam House, and Stadio Holdings. Each wields a unique value proposition, offering everything from comprehensive educational services to prestigious, well-rounded educational experiences. Let’s take a deeper look at the “big four”:
- ADvTECH Group: ADvTECH is also a prominent player in the private school sector, operating renowned brands like Crawford Schools and Trinityhouse. ADvTECH has over 100 schools under its umbrella in South Africa, as well as across the African continent. Their strength springs from their reputation for excellent results and their capability to offer a diverse curriculum, including the Cambridge curriculum. Their 2022 group revenue, as reported in their annual report, grew by 18% to R7.0 billion, from R5.9 billion in financial year 2021.
- Curro Holdings: Standing as South Africa’s largest private school operator, Curro Holdings has over 180 campuses nationwide, catering to 70,000 students. Catering to diverse income segments and offering a spectrum of educational services from pre-primary to tertiary education. Their strength lies in their extensive network and varied offerings, making education accessible across socio-economic strata. Curro has performed well in recent years with revenue up 17.3% to R4.15 billion in 2022, from R3.54 billion in financial year 2021.
- Reddam House: Reddam House is an ensemble of independent schools that aspire to provide a holistic educational experience. They’ve earned a reputation for excellence, with a focus on small class sizes, high academic standards, and a rich palette of extracurricular activities.
- Stadio Holdings: An emerging contender in the private education sector, Stadio Holdings primarily focuses on tertiary education. Originally spun off from Curro Holdings in 2017, they have since charted steady growth. As of 2020, Stadio reported revenue of R962 million. Their competitive advantage lies in their commitment to affordable, quality higher education, addressing a significant need in the South African market.
A booming market
Over the past decade, the private school market has ballooned, fuelled by an expanding middle class and discontent with public schooling. This growth shows no sign of slowing down. The graph by Stats SA depicts the growth in the middle class by showing the distribution of the population by age group.
So, why private schools in South Africa?
There are multiple drivers of growth in the private school sector in South Africa. Some of these drivers are listed below:
- Quality Education Demand: With public school education quality under scrutiny, private schools have emerged as the “go-to” for parents envisioning a brighter future for their children. This demand isn’t expected to dwindle, making the private school sector a potentially lucrative investment.
- Government Support: The South African government is actively championing private education, offering a variety of incentives and support mechanisms. Such backing could furnish a sturdy platform for an investment.
- Digitalisation and Innovation: The surge of technology in education, in tandem with innovative teaching methodologies, presents a golden opportunity for private schools to set themselves apart. This could potentially amplify their allure and profitability.
- Rapid Growth in School Fees: School fees in South Africa are surging. This shows no sign of slowing down. Below indicates the surge of fees for public schools vs. private schools and how this is expected to take shape over the coming years. This bodes well for investors seeking growth in their investments. While the prospect of rising school fees offers growth potential, it is crucial to address the affordability aspect and its impact on the accessibility of private education. More on this to follow below.
While the prospect of rising school fees offers growth potential, it is crucial to address the affordability aspect and its impact on the accessibility of private education :
- Regulatory and Compliance Risk: Private schools must comply with government regulations and educational standards. Meeting curriculum requirements, ensuring qualified teachers, and maintaining safety regulations are critical aspects. Non-compliance can lead to penalties and damage the school’s reputation. Adhering to regulations and upholding high standards is vital for long-term success.
- Operational Risk: Running a school involves managing a community of learners, parents, and educators. Attracting and retaining quality teachers, maintaining infrastructure, ensuring student safety, and creating a nurturing learning environment are ongoing challenges. Any lapses in these areas can impact the school’s reputation and financial performance.
- Competitive Risk: The private school sector in South Africa is growing, which means increased competition. New players, innovative teaching methods, and evolving parental expectations shape the competitive landscape. Staying ahead requires continuous innovation, differentiation, and a deep understanding of market trends and customer preferences.
- Economic Risk: Perhaps one of the most significant risks that private schools are currently facing relates to affordability. With school tuition surging, the affordability of private education is a key factor in parents’ decision-making. Economic instability, such as job uncertainty or inflation, could impact parents’ ability to pay tuition fees, which could, in turn, affect the profitability of private schools. The Department of Basic Education says that children in South Africa are increasingly being taken out of private schools and sent to public schools as parents face mounting economic hardships. The latest School Survey conducted by TPN Credit Bureau showed that 40% of private schools reported having fewer learners this year compared to the previous year. The graph below further illustrates this point, showing that only 62.75% of school fee accounts were in good standing in 2022.
Well, with all of that in mind, the burning question is, should you be invested in private schools in South Africa?
As we unpack the question of investing in South Africa’s private schools, several key aspects need consideration: potential returns, diversification benefits, comparison with traditional asset classes, social impact, available investment options, and routes to access these investments.
- Potential Returns: Investment returns in private schools can be substantial, given the right conditions. Given the previously mentioned burgeoning middle class, escalating demand for quality education, and government incentives, revenues for private schools are on an upswing. However, like all investments, returns aren’t a sure bet and can vary significantly based on factors like the school’s performance, location, reputation, and the overall economic climate. Therefore, potential investors must conduct rigorous financial analysis or consult with an investment advisor to estimate potential returns realistically.
- Diversification Benefits: Investing in private schools provides an opportunity to diversify your portfolio by adding an asset class that is not directly correlated with traditional financial markets. This diversification helps spread risk and potentially enhances long-term returns. The education sector is often considered resilient, even in economic downturns, as parents prioritize their children’s education. This stability can add a layer of security to your investment.
- Social Impact: Investing in private education is not only a potential source of financial returns but also a means to contribute to societal progress. Quality education is a catalyst for personal development, social mobility, and economic growth. By investing in private schools, you directly contribute to improving educational standards, fostering talent, and shaping future leaders. Many private schools in South Africa are actively engaged in community outreach programs, amplifying your social impact. Investing in private schools means building not only a portfolio but also a brighter future for South Africa.
So, you are interested, but you don’t know where to start and how to get involved. There are several avenues to invest in private schools in South Africa:
- Direct Investment: This involves directly investing in a private school or a group of schools. This could be done by starting a new school or by purchasing an existing one.
- Private Equity: Some private equity funds focus on education and could provide a route to invest in a diversified portfolio of schools.
- Publicly Traded Companies: Companies like Curro Holdings and ADvTECH Group are publicly traded on the Johannesburg Stock Exchange, enabling investors to buy shares and indirectly invest in the private school sector.
Ultimately, whether investing in South Africa’s private school sector earns a place on your report card will depend on your risk tolerance, investment objectives, and belief in the continued growth of the sector. As always, thorough due diligence and professional advice are the keys to making an informed investment decision.
In the intricate equation of investment opportunities, private schools in South Africa might just be the variable that brings balance to your portfolio. So, indeed, it might be time to go back to school – this time, not as a student, but as an investor. After all, in the world of investing, education is an asset that never depreciates.
One Response
I sent an application nearly 2 weeks ago and have not even had a message to say that you have received it. I am checking that it actually arrived, if you could let me know, then I can resend.
Kind regards
Mary-Ann Shearer
http://www.mary-anns.com