Earnings Report /
Egypt

Cairo Investment and Real Estate Development: FY 21 – Finance costs limit bottomline growth despite exceptional topline growth

  • Exceptional topline growth due to increased higher education enrolments

  • Increased finance costs and provisions dampen bottom-line growth

  • Maintain Overweight on expansion plans

Al Ahly Pharos Securities Brokerage
8 November 2021

Exceptional topline growth due to increased higher education enrolments

CIRA recorded an exceptional topline of EGP1.391 billion in FY20/21 (+27.8% YoY), in line with our expectations of EGP1.365 billion. Revenues for 4QFY20/21 came in at EGP120 million, up 25.3% YoY but down 76.5% QoQ. This boost in revenues was driven by an exceptional growth in overall revenues in Higher Education (HE) by 52% as well as the steady growth in k-12 tuition revenues by 5%. 

Tuition revenues for FY20/21 increased by 36% YoY to EGP1.277 billion, accounting for 92% of total revenues. The growth in tuition revenues was driven by a solid growth in enrolments across both k-12 and higher education (HE) segments. Other revenues recorded EGP113 million for FY20/21, down 24% YoY, as a result of bus fees reduction due to the pandemic as well as lack of construction income, and contributed to 8% of total revenues.

K-12 revenues for the FY20/21 amounted to EGP578 million, up 4.7% YoY as the increase in tuition fees (17% YoY) to EGP515 million was able to offset a drop in other revenues (-43% YoY) to EGP63 million, caused by lack of construction income and reduction of bus fees. 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% YoY to 30k students and current enrolments increased by 7% to 28,499 students resulting in a stable utilization rate of 95%.

Concerning higher education (represented in BUC), revenues increased by 52% YoY to EGP813 million during FY20/21. This is because tuition fees, which constitute 94% of HE revenues, increased by 53% YoY to EGP762 million driven by a sharp increase in students enrolment on the back of addition of 3 new operating faculties during this year, bringing total number of operating faculties to 13. Consequently, student capacity grew by 29% for BUC to 19k students and enrolments increased by 26% to 13,157 students. Moreover, other revenues increased by 33% YoY to EGP51 million from services provided by BUC representing 6% of HE revenues.

Increased finance costs and provisions dampen bottom-line growth

Gross profit for the year came in at EGP812 million (up 46% YoY), reflecting a +7.2pps YoY increase in GPM to reach 58.4%. 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. Gross loss for 4QFY20/21 came in at EGP2 million, compared to a gross loss of EGP18 million in 4QFY19/20 and gross profit of EGP347 million in 3QFY20/21.

CIRA recorded an EBITDA of EGP680 million for the year, up 42% YoY. EBITDA margin recorded 48.9%, up 4.9pps YoY. This increase in EBITDA margin mirrored the increase in GPM but was partially offset by an increase of SG&A as a percentage of revenues by +2.4pps YoY to 16.8% compared to 14.3% in FY19/20.

Net profit after non-controlling interest for the year came in at EGP309 million, up 21% YoY and 19% lower than our expectations of EGP369 million. NPM was down 1.2pps YoY and recorded 22.2%. Bottom-line for the quarter amounted to a net attributable loss of EGP117 million, compared to a net attributable loss of EGP54 million in 4QFY19/20 and net attributable profit of EGP196 million in 3QFY20/21. Growth on the net profit level in FY20/21 was lower than growth on the EBITDA level primarily on the back of a jump in net interest expense by 126% YoY to EGP119 million in FY20/21 compared to EGP53 million in FY19/20 . This is because CIRA’s net debt increased 151% YoY and amounted to EGP1.181 billion. Moreover, bottom-line was affected by EGP21 million booked provisions during the year compared to provisions of only EGP3 million last year.

Maintain Overweight on expansion plans 

On new ventures’ side, Badr University in Assiut (BUA) in on track to be launched in February 2021/22 which is expected to contribute significantly to the company’s topline.

CIRA is also planning to establish Cairo Saxony University for Applied Sciences and Technology in partnership with Al Ahly Capital, to be launched in 2023. Moreover, CIRA is planning to establish the New Damietta University in partnership with Elsewedy Capital, to be launched in 2023 as well.  

CIRA recently acquired a land plot 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. CIRA will operate three new faculties in BUC which will be open for admission at the start of FY21/22, bringing the total of BUC faculties to 16 faculties. Furthermore, CIRA is focused on expanding its k-12 and nurseries platforms.  

CIRA is currently trading at FY21/22 P/E of 17.3x and EV/EBITDA of 10.9x.