"Announce a school project in the UAE and you will have full advance bookings for admission in a day," says a market analyst. "Investors love that." Image Credit: Shutterstock

Dubai: Is education set to be the next big theme for UAE investors and its stock markets?

As the UAE’s third IPO of the year – that of Alef Education – opens for subscription, the sentiment is that businesses in the educational space are already getting a lot of the spotlight. Consider this:

  • The Taaleem stock on DFM has been on a tear, gaining as much as 45 per cent in the last 12 months. The company has a growing base of schools that it owns or operates in the UAE, and has plans to enter some of the other Gulf markets.
  • The Al Mal Capital REIT (real estate investment trust) recently completed a well-received rights issue, raking in Dh180 million, as it plans to build up its assets in the education space.
  • DFM-listed Amanat could offer a stock float of its education-focused assets. In a stock market filing on DFM, it is considering a ‘potential regional listing’ for these assets. The company is appointing financial advisors to evaluate ‘monetisation options’ to this end.

And there is appetite building up for more such education focused offerings. Because the impression remains that investors in the UAE – and the Gulf – would not mind seeing more options available in two vital sectors, education services and healthcare.

“In the UAE, all you need to do is announce a new school project and it’s a given that admission bookings will close well before the school actually opens,” said an analyst. “This is not some demand that will see a slowing down any time soon. Investors know that and want a piece of that action.”

Taaleem, the Dubai headquartered school operator, has come up with solid financials in its recent quarters. And its stock? Up more than 40 per cent in the last 12 months. Image Credit: Supplied

It’s into this space that Alef Education opens its IPO process and go on to a listing on the ADX. The group, which is into digital education services, has long-term contracts to provide these solutions to all public schools in the UAE. As well as ‘many’ private schools.

In numbers, that means its platforms served around 1.1 million registered students and about 7,000 schools as of end 2023. Apart from the UAE, it has a presence in the US (since 2018), Indonesia (from 2021) and Morocco (from 2022). (There is also a presence in Qatar through a reseller agreement since 2023.)

Through the IPO, “We are not only offering investors the opportunity to participate in the growth of a company with a truly unique proposition – as the first-ever edtech company to be listed in the UAE – but also one that is operating in a sector with considerable tailwinds, growth and value drivers,” said Abdulhamid Mohammed Saeed Alahmadi, Chairman of Alef Education.

The company – which had revenues of Dh750 million and an adjusted profit of Dh455 million in 2023 - is floating 20 per cent and the listing on ADX is scheduled for June 12.

Will education sector offer more IPOs?

“The education sector is not adequately represented on the GCC stock exchanges as there are only nine listed companies,” said Junaid Ansari, Director of Investment Strategy and Research at Kuwait-based Kamco Invest.

“On the other hand, there are a number of private educational institution chains in the region taking advantage of the government’s strategic plan to boost human capital and technical know-how of their citizens and residents.

"The education sector trades at an average P/E (price-to-earnings) of over 30x, indicating a premium over the average GCC P/E of around 20x. However, since there are a mere nine companies, the range of the P/E is very wide.

"That said, there are a few good names in the sector offering excellent return potential with low P/Es as well as high dividend yields."

With education IPOs, there are the obvious factors that investors will seize on - the growing populations in the major GCC economies, the need for more schools and educational services that these populations will need.

Plus, there is the heightened investor awareness of what vital sectors can offer. "Until recently, the GCC capital markets were dominated by financial services, real estate and industrial listings," said an analyst. "That's now changing - you had PureHeath and Burjeel Holddings list on ADX and offering healthcare representation. And with the Spinneys' IPO, retail gets its presence and which will now be followed by LuLu." 

Check out Alef Education's margins
"Alef Education's financial performance appears promising. In 2023, the company generated revenues of Dh750 million and achieved adjusted EBITDA and profit margin of 65% and 61%, respectively. With education being a fast-growing sector in the UAE due to its rising population and favorable demographics, the company is poised for future growth.

Alef Education's strong margins compared to its peers could be an appealing factor for potential investors and could also contribute to a higher valuation for the company. And let's not forget that education stocks are considered defensive and stable, which is suitable for a large audience of institutional investors."

- Vijay Valecha, Chief Investment Officer at Century Financial