ADvTECH Ltd – A foundation for strong earnings growth

ADvTECH announced a solid 1H21 result with a 31% rise in normalised HEPS and a resumption of dividends (19c DPS). After six years of investment the company has slowed down capex spend and is focusing on increasing the utilisation rates of its schools. This is positively impacting margins, reducing debt and increasing free cash flow. Its Africa schools are for the first time positively contributing to EBIT and are poised for strong earnings growth. We see strong demand for private schooling and tertiary education in SA as the public sector offering is placed under huge strain and affordability gaps between ADvTECH and the public sector has narrowed considerably. We forecast 23% and 18% HEPS growth in FY21E and FY22E. We calculate a fair value range of R17.67-23.13/share.