Earnings Report /
Egypt

Cairo Investment and Real Estate Development: 1QFY21 – Higher education boosts topline but interest expense pressures NPM

  • Higher Education boosts revenues for 1QFY2020/2021

  • Operating margins expand driven by expansion in higher education; interest expense and increased tax weighs down on NPM

  • Maintain FV at EGP15.50/share on expansion plans

Al Ahly Pharos Securities Brokerage
17 January 2021

Higher Education boosts revenues for 1QFY2020/2021

CIRA recorded a topline of EGP370 million for 1QFY20/21 (+18.2% YoY) slightly below our expectations of EGP387 million. Tuition revenues increased 25% YoY to EGP327 million, accounting for 88% of total revenues. The growth in tuition revenues was driven by a surge in students enrollment in both k-12 and higher education (HE) segments. Other revenues recorded EGP43 million, down 15% YoY, as a result of bus fees reduction, and contributed 12% of total revenues.

K-12 revenues for the quarter amounted to EGP161.1 million, down 2% YoY as the increase in tuition fees (12% YoY) to EGP144.9 million did not completely offset the drop in other revenues (-54% YoY) to EGP16.2 million, caused by lack of construction income and reduction of bus fees which were lower than half of 1QFY19/20. K-12 segment is currently composed of 21 schools after the addition of Regent British School during the last academic year. Student capacity increased by 6% to 30k students and current enrollments increased by 5% to 28,100 students resulting in a stable utilization rate of 94%.

Concerning higher education (HE/represented in BUC), revenues surged by 40% YoY to EGP208.9 million during 1QFY20/21. This is because tuition fees, which constitutes 90% of HE revenues,  increased by 37% YoY to EGP182.1 million driven by increased students enrollment and the inauguration of 4 new faculties at Badr University in Cairo for FY20/21 academic year, bringing total number of operating faculties to 13. Consequently, student capacity grew by 46% for BUC to 19k students and enrollments increased by 26% to 12,952 students. Moreover, other revenues increased by 68% YoY to EGP26.8 million from services provided by BUC.

Operating margins expand driven by expansion in higher education

Gross profit for the quarter came in at EGP228 million (+32% YoY), reflecting a +6.5pps YoY increase in GPM to reach 61.7% compared to 55.2% (+6.5pps) in 1QFY19/20. The expansion of GPM came on the back of increased revenues as well as a significant reduction in operating expenses as a percentage of revenues.

CIRA recorded an EBITDA of EGP203 million, up 33.6% YoY. EBITDA margin recorded 55.0%, up 6.3pps YoY. This increase in EBITDA margin mirrored the increase in GPM and came on the back of improved economies of scale. This came despite the increase of SG&A as a percentage of revenues by +1pps to 13.3% compared to 12.3% in 1QFY19/20.

Interest expense and increased tax weighs down on NPM

Net profit after non-controlling interest for the quarter came in at EGP112 million, up 12.9% YoY and close to our expectations of EGP109 million. NPM was down 1.4pps and recorded 30.3% compared to 31.7% last year. The results were affected by 1) an increase of net interest expense to EGP25.1 million during the quarter compared to EGP0.1 million of net interest income in 1Q19/20, 2) increase in tax expense by EGP7.3 in 1QFY20/21 compared to that of 1QFY19/20. CIRA’s net debt amounted to EGP521 million, down 13.4% YTD, despite the higher debt YoY, with net debt/equity of 0.5x same as last quarter but much higher than that of 1QFY19/20 (0.2x). 

Maintain FV at EGP15.50/share on expansion plans

On new ventures’ side, Badr University in Assiut (BUA) in on track to be launched in academic year 2021/22 with 5 new medical schools and expected to contribute significantly to the company’s topline. CIRA recently acquired a land next to BUC on which the company is planning to build a new international campus, community college and extension to the existing campus of BUC. Furthermore, CIRA started constructing 2 new schools, namely BCCIS West and SIS, which are planned to operate in FY21/22 depending on the acquiring of relevant licenses. In addition, CIRA expects to begin constructions for a new school in Sohag by the end of this month.

It is noteworthy that CIRA issued Ijara Sukuk with an amount of EGP600 million. The sukuk was 2.3x over-subscribed. CIRA is planning to use funds raised by the sukuk issuance to finance current and future expansion plans.

CIRA is currently trading at FY20/21 P/E of 27.6x and EV/EBITDA of 12x.