Earnings Report /
Egypt

Cairo Investment and Real Estate Development: Topline climbs on tuition fees & enrollment rise; expansions pressures margins

  • Tuition fees & enrollment rise boosts topline

  • Recent expansions pressures margins due to time lag in revenue generation

  • Maintain Overweight on future earnings trajectory accompanying expansion plans

Al Ahly Pharos Securities Brokerage
31 January 2022

Tuition fees & enrollment rise boosts topline

CIRA recorded a solid topline of EGP430 mn in 1Q21/22, compared to EGP370 mn in 1Q20/21, rising by 16.2% YoY. This boost in revenues came backed by steady growth in Higher Education (HE) revenues of 12%, as well as solid growth in K-12 tuition revenues by a full 21.7%.

Tuition revenues for 1Q21/22 increased by 18% YoY to EGP386.2 mn, accounting for 89.8% of total revenues. Tuition revenue growth came on the back of the increase in enrollment across both K-12 and Higher Education (HE) segments. Other revenues came in at EGP43.8 mn during the quarter, up by 2% YoY, despite the decline in most of the other revenues streams due to the slowdown associated with the pandemic, contributing with 10% to total revenues. 

K-12 revenues for 1Q21/22 amounted to EGP196.1 mn, up 22% YoY, contributing to topline 45.6% during the quarter. Revenue growth was mainly backed by a rise in tuition fees by 17% YoY, reaching EGP169.2 mn, representing 86.3% of K-12 revenues. Other revenues witnessed a remarkable growth for 1Q21/22, coming in at EGP27 mn, a YoY hike of 66%. This growth in other revenues was driven by a mix of a surge in bus fees income, as the number of students attending classes on site increased during the quarter, as well as an increase in revenues associated with extracurricular activities based on a recent new offering within the segment, leading to a contribution to K-12 segment’s topline of 13.7%. The K-12 segment currently consists of 24 schools after the recent addition of 4 new schools. Student capacity increased by 13% YoY to 34k students and current enrollment increased by 10% YoY to 30.9k students resulting in a utilization rate of 91%.

As for Higher Education (represented in BUC), revenues increased by 12% YoY to reach EGP234 mn, driven solely by a 19% YoY rise in tuition revenues to EGP217 mn, backed by a ramp-up in student enrollment at existing facilities as well as enrollment at BUC’s recently launched faculties. However, the increase in tuition revenues, was partially offset by a decline of 37% YoY in other revenues on the back of a slowdown in overall traffic at the campus driven by recent new waves of the pandemic, resulting in a decrease in food court revenues and other services that are usually generated on-site, leading to a contribution to overall revenues of the higher education segment of 7.2%. Student capacity grew by 32% YoY to reach 25k thousand students for BUC and the number of enrolments increased by 8% YoY to reach 14k students, hitting a utilization rate of 56% during 1Q21/22.

Recent expansions pressures margins due to a time lag in revenue generation

CIRA’s gross profit reached EGP226 mn, compared to EGP228 mn in 1Q20/21, a YoY decline of 1%. This drop in gross profit is backed by a rise in operating costs related to the newly developed schools, the launch of 3 new faculties at BUC, and costs related to the establishment of Badr University Assiut, which is not yet operational. With the new expansions not yet revenue generating, GPM came in at 52.5% for the quarter, compared to 61.7% in 1Q20/21, a drop of 9.1pps YoY.

EBITDA came in at EGP211 mn, above 1Q20/21 levels of EGP203 mn, a YoY incline of 4%. The rise in EBITDA came despite lower gross profit levels, backed by a decline in SG&A expenses by 5.2% YoY to reach EGP47 mn, with their percentage to sales coming in at 10.9%, compared to 13.3% in 1Q20/21. EBITDA margin recorded 49.2%, versus 55% in 1Q20/21, a YoY decline of 5.8pps.

Net profit after NCI reached EGP100 mn, below 1Q20/21 levels of EGP112 mn by 11.2%. The decline was primarily driven by the decrease in operational profitability as a result of recent expansions, combined with a rise of 53% YoY in net interest expenses, associated with the securing of new loans at higher relative interest rates and the conclusion of grace period afforded on multiple existing loans. NPM came in at 23.2%, versus 30.3% in 1Q20/21, a YoY drop of 7.2pps.

Maintain Overweight on future earnings trajectory accompanying expansion plans

On the new ventures’ side, Badr University in Assiut (BUA) is on track to be launched in February 2021/22 which is expected to contribute significantly to the company’s topline, with 3 initial operational faculties, reaching 7 faculties by September.

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. 

Furthermore, CIRA is focused on expanding its k-12 and nurseries platforms. Following their plan to introduce 6 new schools by 2023, only one school will be launched during 2022, while the year after should witness the launch of 5 new schools.

CIRA is currently trading at FY21/22 P/E of 27.5x and EV/EBITDA of 11.3x.