Our opinion on the current state of ADH

Advtech (ADH) is one of three listed commercial educational companies on the JSE (the others are Curro and its separately listed sister company, Stadio). Advtech has two divisions - a schools division (including Crawford, Trinity House and Abbots) and a tertiary division (including Varsity College, Rosebank College and a variety of specialist tertiary offerings). The group includes 109 schools and thirty-three campuses with 78500 students. In the past, the company was supported mainly by its schools division, but in the last few years the schools division has faced increasing competition, which has squeezed margins. At the same time the tertiary division has become the company's primary source of profits. The company's acquisition of Monash College with its IIE campus in the West Rand has added 6500 students in a state-of-the-art facility which includes laboratories, four residences and sports facilities. In its results for the six months to 30th June 2023 the company reported revenue up 16% and headline earnings per share (HEPS) up 24%. The company said, "The financial performance for the first six months of the year was delivered off the back of higher enrolments and moderate fee increases across all parts of the education division together with enhanced operating leverage, while, in our resourcing division, the positive momentum in volumes from the prior year continued". Technically, the share peaked at over R20 in March 2017 and drifted downwards to a low of 591c at the end of May 2020. Since then it has been tracking up again and has broken up through its long-term downward trendline - signalling a new upward trend. It is now on a multiple (P:E) of 14,13 which still looks like reasonable value. In our view, this is a solid, blue chip company with good medium-term prospects, and it is relatively cheap. Any significant improvement in the South African economy will benefit this company directly. Traditionally, parents are always willing to make significant sacrifices to pay for their children's education, which makes this share very defensive in times of low growth.