Dubai: The IPO from Dubai school operator Taaleem, and a possible one from GEMS, will garner a lot of interest from a group that knows their operations well enough – parents who have children at these schools.
While returns on these investments will depend on how well UAE schools keep doing on new enrolments, education providers could be winners for your stock portfolio. “Picking companies that have shown themselves to be capable of continuing to grow even though disruptions could result in some profitable choices,” said Dr. Matthew Sukumaran, Chief Operating Officer at Heriot-Watt University Dubai.
“The economic rigour one experiences in the UAE is conducive for a sector that caters to placements, internships and job opportunities for students.”
Parents as investors
Taaleem Holdings plans to open four new premium British schools in the next three years through funds raised from the IPO. “We will be building a Dubai British School (DBS) in Mira and one in the heart of Jumeirah,” said Alan Williamson, CEO.
“I would encourage parents to invest in the IPO, making this a cooperative concept between the school and stakeholders. Not only can you send your child to a Taaleem school, you can invest in the school and benefit from the returns. We are going to listen to parents as shareholders.
One of the parents said to me that we need to retain our teachers. Our teachers are staying because the company is profitable, and we invest in the highest quality schools. We have seen applications to join Taaleem triple in the last two years.
But with parents as investors, isn’t there the burden of even higher expectations from them? Williamson said: “All schools and businesses should thrive on high expectations. In some ways, investing in the IPO allows parents to care more for the school and their child.”
Alan Williamson of Taaleem said: “The KHDA and the ADEK regulate school fees in Dubai and Abu Dhabi. We have a five-year strategic plan that is lucrative for the growth of our schools. This plan has been developed without the need for additional revenue from school fees. The increased revenue comes from growth.”
Taaleem said it would use school fees strategically to counter inflationary pressure, such as increasing teachers' salaries and property pricing increases. “Over the last two years, we have increased net profitability by 35 per cent CAGR, and that is purely from a growth in student numbers,” he stated.
UAE-wide growth story
Along with a strong government impetus, the UAE’s K-12 schooling landscape is backed by macroeconomic indicators – stable growth in real GDP and higher numbers of relevant age resident base.
Support from the government comes in the form of public spending, economic diversification, and clarity in regulations and licensing, states LEK Consulting’s latest report on the education sector.
“Within the UAE, Dubai is the largest private international K-12 market with a size of $3 billion,” said Ashwin Assomull, Partner at LEK Consulting.
In the current academic year, private schools in Dubai account for 90 per cent of enrolment, while in Abu Dhabi, it is 68 per cent. “Contrary to common perception, Dubai has one of the more affordable K-12 markets globally,” said Assomull. “Dubai and Abu Dhabi have witnessed a majority share of enrolments in mid-priced and budget schools.”
In Abu Dhabi, expatriates account for 64 per cent of private K-12 market enrolment. This number has grown at a CAGR of 3 per cent from the academic period 2021-23. Emiratis are driving enrolment growth in private K-12 at a CAGR of 4 per cent in the same period.
“The success of the school sector over the last couple of years is directly linked to the success of the UAE,” said Assomull. “And how they’ve managed through the last couple of years of COVID-19, cementing UAE as a hub for global talent.
“Home-grown school operators are raising capital to continue their growth plans so they can invest in more schools, more seats, and quality education.”
More significant funding through IPOs means having greater cash flows and resources. This, in turn, provides a degree of latitude for the institution to regulate and set their fees - within reason
Will GEMS be next?
While GEMS Education has been largely silent about its expansion plans, the group did release a statement that confirmed it is looking at ways to grow and diversify its business.
“In line with our ambition to push the boundaries of education to ensure as many children as possible around the world reach their full potential, we are always looking at ways to grow and diversify the business,” said GEMS in the statement. “This includes regularly reviewing our capital structure.
“We are focused on building on the success we have achieved not only in the UAE but in other markets such as Saudi Arabia and Egypt.”
If GEMS does do an IPO, parent-investors will be ready. They certainly would have had their 'practice lessons'.