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Why this small JSE education company is a CORE holding in my portfolio.

Feb. 29, 2024
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Insights on: Business, Strategy, Financials, Team, Valuations, Bullish factors & opinion.


STADIO

We all know education is a massive problem.

BUT: The bigger the problem, the bigger the opportunity.


Basics

 Stadio consist 3 businesses (institutions):

  • STADIO Higher Education Comprehensive institution
  • AFDA- Film School
  • Milpark Education- Leader in distance learning

Key Financials:

  • Stadio Share Price: R3.30
  • PE Ratio: 19
  • YTD Return: -8.33%
  • Dividend Yield: 1.43%

 

Strategy to date

- Acquired 7 brands

- Purchased land in Centurion & Durbanville to build campuses

- Development of new programmes

- Launched Stadio Higher Education

- Group owns 3 distinct private higher education institutions

- Invest in distance learning infrastructure, systems, processes and policies

- Accreditation of new in-demand programmes.

- STADIO Centurion campus opens

- Successful accreditation of new programmes

 

Goals:

20%+ sustainable growth going forward with minimum capital requirements

Exploration of new markets- With their online offering, international expansion is very possible.

 

General Strategy:

80% Online learning

20% Contact learning

 

Offerings

  • Business, Commerce and Management
  •  Film, media design, architecture, spatial designs and fashion.
  •  IT
  • Law
  • Business School

86+ Accredited Programmes

34+ Pipeline Programmes 

Accreditation is key. 
 

Student growth

End of 2021 Stadio has 38 262 students.

Their latest update was 31 May 2022, where total students were reported at 38 414 (+11% from 30 June 2021)

Their goal is 56 000 students by 2026. To reach this, Stadio will need to achieve an 8% annual growth rate, which is very doable.

Then 100 000+ students in the future.

With 56 000 students, Stadio aims to achieve R500 million profit after tax. (By 2026)

Stadio has a current market cap of R2.79 Billion, which is still small in the bigger picture of things.

 

Financials

Previous financial year (2021)

  • Students: 38 262 (+9%)
  • Revenue: R1.1 Billion (+18%)
  • Adjusted EBITDA R310 million (+23%)
  • Headline Earnings R144 million from negative R70 000
  • Core Headline Earnings R149 million (+27%)
  • Core HEPS 17.6cps (+24%)
  • Maiden dividend declared of 4.7 cents per share, which is around 1.42% of the current share price.
  • Cash R66 Million (R117 million: 2020)
  • Debt R15 million (R45 million: 2020)
  • Overall, healthy balance sheet! 

 

From 2019 to 2020:

Students grew 9,92%

Revenue grew 14.48%

From 2020 to 2021:

Students grew 9,22%

Revenue grew 17.68%

 

Shareholder analysis

  • PSG Alpha Investments 42.9% of shares held
  • Coronation Fund Manager 7.9%
  • Brimstone 5.1%
  • Directors own 22 052 000 shares. Which equates to around 2.6% of Issued shares. (R72.77 million worth of shares)

Looking at the shareholding, it is quite concentrated with PSG owning 42.9%, but you have to ask the question again, why is PSG holding on to their Stadio shares when they are unbundling everything else?

 

What I like:

1. Massive and growing TAM

2. Low competition

UNISA has over 400 000 students- Stadio is a UNISA alternative

3. Education sector

Education is an exciting sector with lots of long term potential. It takes years to build the foundation, brand, modules, get accreditation, property, systems etc

But once all that is in place, it is easy to scale, grow margins and expand on the product. Personally I believe that is where Stadio is now.

4. Distant learning potential

They have a quality online learning product. Online learning is easy to scale, as it required less investment and can cater for more students at a time. 

5. It is still early days 

There is still a lot that Stadio needs to do. Execution is KEY! But, if they execute well, it can provide a lot of upside for PATIENT shareholders over the long term.

6. Attractive valuation with limited downside if they continue to grow at the metrics provided

7. Quality and experienced team

8. You have to ask the question, why is PSG not unbundling their Stadio shares? Maybe it is because they long-term upside.

9. Management has skin in the game

10. Graduated students have skin in the game 

Stadio launched a Student Share Scheme, which essentially turns graduates into shareholders. This is quite unique.

11. Free money (Dividends) 

Stadio paid their maiden dividend of 4.7 cps. In their financial statements, they stated In time, the Group will look to payout 80%+ of free cash flow having regard to investment in future growth projects. In time, Stadio can become a quality dividend player!

12. Africa potential

They already have a small footprint in Namibia. In my opinion, there is a massive opportunity for education across Africa. Stadio is setting the foundation for potential growth, across different geographies.

13. High cash generative business.

14. Accreditation of courses and the ability to expand into different industries, such as engineering. The more modules are offerend, the better the value proposition for current and pitential future students.

15. Government opportunity

I am not sure about this one, but maybe stadio can partner with the government to fund students.

 
What to watch:

Interim results presentation (30 August 2022)

What I want to see:

  • Student growth of >8% YoY
  • Core HEPS Growth of >25%
  • Revenue growth of >14%

If it is lower than the above-mentioned, I will be disappointed, but wont sell my shares. Stadio is still in its early days and I am in it for the long term as I believe they will provide quality results as a business in the years to come.

Small caps like Stadio, are likely to be stagnant for quite a while.

The share price always catches up to the business, it might just take some time. 

It probably wont shoot the lights out in the short-term, but in the long-term, Stadio has immense opportunity.

For more on Stadio:

(Disclaimer: This is my personal opinion and not financial advice. This is for educational and informational purposes only. Always do your own due diligence.)

 

 


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