South Africa’s gross domestic product (GDP) is on a trajectory of getting a lot worse, for longer, before it gets better.
The GDP decline of -2 percent for the first quarter, which was before the Covid-19 lockdown, served only to confirm that the country was already in a recession before the pandemic.
The three months of lockdown, where virtually the whole country was closed for that period, will be reflected in the second quarter GDP figures, and just how severe that is going to be is indicated by the fact that according to Statistics SA, just more than 10 percent of businesses closed permanently by the end of May.
Investec chief economist Annabel Bishop said they expect South Africa to record a -10.1 percent year-on-year contraction in 2020 – many other economist forecasts are worse, while the National Treasury’s forecast rather optimistically is at -7.2 percent.
If one compares current circumstances to the global recession of 2008/2009, Bishop said South Africa was in a much stronger position fiscally and from a business point of view then, and the current recovery will likely be much weaker and slower this time around.
In contrast, the recovery in other parts of the world seems likely to be faster. For example, some of the big JSE-listed property groups with assets in Europe, where lockdown easing has mostly taken place slightly earlier than in South Africa and with slightly less stringent regulations, are already reporting up to 75 percent of pre-Covid-19 foot counts in their shopping malls, and rental collections are recovering fast too.
For South African investors on the JSE, unfortunately, it means that some industrial and business sectors, at least in the medium term, are likely to grow less faster than others.
One sector likely to continue growing is tertiary education, due to the burgeoning and relatively young age of the population. The world economy is built on networks of supply chains, and services, local and international, and youngsters need to increasingly be able to compete at a global level at work. Tertiary education is also a sector less likely to be impacted measurably by the Covid-19 virus, and distance learning is still in relative infancy in this country.
Perhaps it was this that resulted in the sharp increase of Stadia Holdings’ share price last week. The price fell 9.55percent to R1.80 on Friday morning, but this was still 33 percent up over a week. The price:earnings ratio was more than 23.
Stadio said in a trading statement a day before that the core headline earnings a share for the six months to June 30 would be between 4 to 24 percent higher than for the same period a year before and it had wisely decided to delay building a new campus due to Covid-19. To my mind though, there is great scope to grow its 25000 online student base.
Another private education company to hold its annual general meeting last week was Curro Holdings, which focuses on operating preschools, primary schools and high schools, with more than 40 school campuses through its five school brands.
The group, which reported a 2 percent rise in headline earnings in the year to December 31, with leaner numbers up 9 percent and revenue increased by 18 percent, said the numbers of its learners from Grade 1 to 12 had only fallen 0.1 percent from March to last week, although there had been an 18percent decline in pre-school learner numbers.
Curro’s share price was down 1.56 percent to R8.85 on Friday in intraday trade, barely up from the R8.81 that it closed at the previous Friday. Its price earnings ratio was around 14.7.
Consider that a year ago, the share price was trading at R23.99. Nevertheless, both Stadio and Curro have an advantage over many locally listed companies at present, in that demand for their businesses is likely to remain resilient throughout the Covid-19 crisis and beyond.
Also having their AGM last week was schools, tertiary education and resources group Advtech, a group that has notched up consistent earnings growth in the past five years.
AdvTech’s share price was down 3.34 percent to R6.65 on Friday midday, at a relatively low price:earnings ratio of 8 when compared with the two companies above.
The share price was trading at R7.20 on Friday last week, and one wonders if the rejection at the AGM of the resolution on remuneration policy by shareholders holding more than 40 percent of the shares had anything to do with it.
April collections at its tertiary institutions were 30 percent the same month a year earlier, and collections in the months at the group’s schools were 10 percent lower. The number of total new enrolments for 2020 had been 10percent higher than in 2019, and first quarter performance was solid.
The group should recover. The online school planned to launch in 2021 is going to be a hit.
Further up the human resources ladder on the JSE, life is after all about learning, is recruitment and temporary staffing firm Adcorp Holdings. Its share price was unchanged at R3.99 on Friday, at a price:earnings of over 64. But the group made a 6.2cents per share headline loss in the year to end-February 2020, from 245c per share headline earnings the year before. Last week Adcorp said it was in “advanced” talks to dispose of Dare Australia, which provides recruitment for the oil and gas sector, and that it had started negotiations to sell its financial services division. The group is selling assets and retrenching to prepare for what it believes will be a weak post Covid-19 environment.
Holding its AGM this week is the temporary and permanent recruitment and business process outsourcing firm Workforce Holdings. Its share price was unchanged at 99c on Friday, having dropped about a third over 12 months.
Headline earnings per share fell 5.1 percent to 44.7 cents in the year to December 31, off revenue that was up 7.1 percent to R3.2 billion. A trading update said 10 days ago that while activity had dropped off significantly under Covid-19, its level of business had exceeded its initial expectation, and that the group had maintained sufficient strength on its balance sheet to see it through the Covid-19 crisis.