Year in Review Part 1- Education proves its mettle as a defensive sector in the face of covid: In a tumultuous year, education providers have come under heavy scrutiny for their ability to meet demand (or not) through online and blended learning, and exam management. But as a sector, education remains robust, with stocks resilient and CAPEX investment steady.
Covid school closures in March spurred a sudden move online: Some schools and universities deployed tools already in use, like Google Classroom or their own learning systems, while others created new ones, including online lessons in video format. Teachers had to quickly adapt to new ways of lesson delivery and longer preparation times, while schools upped their teacher training and investment in online learning infrastructure.
And while educators were initially optimistic, the covid reality was different — and parents, children and teachers all felt the strain. Full-time online learning was widely criticized for not being interactive and relying too much on parental involvement. Online learning platforms are reasonably good for delivering content and submitting assignments, but not for student assessment or facilitating communication, parents said. There was particular pressure on working parents, and those with small children.
Most see blended learning as a step in the right direction: With the new school year, blended learning models have enabled a partial return to the classroom. Schools generally lobbied for blended learning, despite increased costs of at least 8-10% including continued investment in online platforms and infrastructure, extra sanitation and operational measures. Blended learning is widely preferred, but the online component still needs to be more interactive, and social distancing needs to be more strongly enforced in the classroom, parents feel.
But who should bear the increased costs was a contentious issue: An ongoing tuition dispute saw some parents push for deferment of 15% of total 2019-20 fees and partial refunds for services like transportation and on-campus activities. While some top-tier private and international schools offered deferments, improved pay structures, and even refunds where possible, some other private national schools pushed for overdue fees and early installments for the 2020-21 academic year. Some even lobbied the education ministry to let them raise fees beyond the 7% cap on annual tuition hikes, to shoulder the extra costs of blended learning. The dispute remains unresolved.
Despite it all, education stocks outperformed the benchmark EGX30 and traditionally strong market performers like banks. Education services are currently up 13.82% YTD, while the benchmark EGX30 is down 21.25% YTD and banks down 16.81% since the start of the year. The covid-19 market meltdown in early March did impact education stocks, but they saw only about half the dip of the EGX30. Since bouncing back, they’ve gone from strength to strength. In August, education services were up 5.22% YTD after being down 6.68% YTD in early March, and they’ve continued to climb steadily.
We saw this strong defensive play because the education sector is in itself resilient, industry insiders kept telling us. Education remains a priority irrespective of social upheaval, as demonstrated in 2011 when parents continued to pay tuition fees despite school closures. Online learning challenges and tuition fee disputes didn’t negatively impact investor sentiment or lead to dips in equity performance after the initial March blip. Appetite has remained strong throughout the pandemic, said one education provider. “Investors have a very growth-focused mindset and they know that the population is growing, which means demand for education services will continue to grow as well.”
Continued demand for education services also fueled growing CAPEX investment: CAPEX spending remained substantial throughout 2020, with large operators maintaining their investment levels despite some delays in execution. One provider reported an extra 15-20% rise in CAPEX spending. High levels of greenfield activity were reported throughout the year, and enrollment at some top-tier international schools actually exceeded projections. Overall, CAPEX investment in Egypt is expected to keep growing, despite delays in planned construction of new buildings and facilities, and an increase in OPEX spending.
So what can we expect in 2021? In the absence of a return to full-time classroom learning, the pressure will be on schools to refine their blended learning models and take the burden off stressed parents, children and teachers. International exam providers will want to avoid a repeat of 2020’s widespread confusion, so we should expect a slicker rollout — with more emphasis on online exams. And we expect education to consolidate its position as a solid investment prospect, with construction and CAPEX spending accelerating and stocks holding strong.
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