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The market lowdown on HomeChoice, DRDGold and Curro & co

The market lowdown on HomeChoice, DRDGold and Curro & co
The Finance Ghost
By The Finance Ghost
18 Aug 2024
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HomeChoice’s fintech sideline is driving up its figures, and in the education space it’s the capital-light tertiary sector that’s performing particularly well. Meanwhile, among South Africa’s gold miners, DRD Gold has failed to capitalise on an improving higher gold price.

HomeChoice gives fintech strategy maximum focus


You won’t see HomeChoice too often on stock-picking lists. Perhaps the results for the six months to June could change that, as revenue is up 15% and operating profit up 36%. Those are really strong numbers, driven by the recent push into the fintech space.

The retail side of the business (online sales of homeware, among other things) is now only 30% of revenue. The rest is from finance income (45%) and fees on the fintech offerings. These include the investment in PayJustNow, which is a buy-now, pay-later offering that has become very popular in places like the US and is picking up in popularity here, with good reason. For consumers, it’s a great solution.

Liquidity in the HomeChoice share price is a concern, but it’s up 49% in the past year. If only there was more of a free float here to drive proper price discovery.

Tertiary sector the way to go


In the education sector, we’ve seen a massive dislocation in share price performance in the past five years. Because of a more ­capital-heavy strategy and a client base of middle-income parents who suffered in Covid, Curro had to execute a rights offer during the pandemic and thus the share price is down 36% over five years.

In contrast, AdvTech is up 166% over that period and Curro spin-off Stadio is up 94%. The capital-light strategy of tertiary versus primary and secondary education has worked well for Stadio and AdvTech, with the latter also holding a portfolio of premium primary and secondary schools, where wealthier parents were more sheltered from the impact of the pandemic.

Naturally, the returns are also driven by valuations and exactly when you bought. Over the past year, AdvTech is still the winner with a 54% return, but Curro has stuck its head well above water with a 31% return. Stadio has returned 6% as the valuation could now be considered fully priced based on performance.

AdvTech and Stadio have both released trading statements that show earnings are heading in the right direction. At AdvTech, Heps was up by between 13% and 18% for the six months to June. At Stadio, it was up between 14% and 24.3%.

Difference in gold miners and price


When the gold price goes down, you can be fairly sure that gold miners will perform poorly as a result. There isn’t much that commodity groups can do when the price of their chosen commodity is falling.

On the upswing in the gold price, though, there’s no guarantee at all that every mining group will do well. We’ve seen that recently with AngloGold (a positive result) versus Gold Fields (a disappointment), and now we have another example at DRDGold.

DRDGold mines the tailings – old mining waste that still has some gold in it that wasn’t economical to mine in previous years. The margins are far thinner, so there’s less room for error.

In theory, this should mean DRDGold does especially well when the gold price moves higher, as there is huge operating leverage in the business model.

Alas, for the year ended June, Heps at DRDGold moved by between -1% and 9%. Operating costs increased by the same percentage as revenue, so it didn’t achieve a margin uplift. Production issues included delays in site approvals, forcing the company to focus on legacy sites that really aren’t efficient any more.

At least there is no debt on the balance sheet, so it should do well if the gold price stays strong and the delays get resolved. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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