COVID19: For-profit education providers to see growth beyond pandemic

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Despite coronavirus disruptions, growing demand for quality education will continue to drive primary and secondary education provider’s growth over the next three years, according to a new report by Moody’s Investors Service.

The rating agency said in the report that those with scale, geographical diversification and good track records will see their credit quality benefit from this trend.

“While the coronavirus pandemic will slow the sector’s revenue growth in the 2021 academic year, growth will resume in subsequent years driven by underlying demand for quality education – particularly in emerging markets where there are large populations of school-age children and rising disposable incomes among the middle class,” said Shawn Xiong, a Moody’s Assistant Vice President and analyst.

“In addition, as the reopening of schools and learning centres varies by city and country, private education providers’ geographical diversity will serve as a key strength for their credit quality in this very fragmented sector,” added Xiong.

Moody’s expects blended learning to be a growing part of the service offering for private primary and secondary education providers, with learning centres further moving to pure online offerings if required.

Companies that have already invested in their online platforms and demonstrated their ability to offer online learning will be able to capitalise on this growing trend.

Due to their business models, the private education providers that Moody’s rates are able to collect school and tuition fees largely upfront, thereby minimising working capital requirements during the academic year. Combined with high revenue visibility and historical growth in the industry, this has translated into strong cash flow generation.

“That said, depending on their operating model and ownership structure, companies will have different capital intensities and face different operational and financial challenges,” concludes Lucia Lopez, a senior analyst at Moody’s and co-author of the report.