Academics have long argued that improved education, particularly of females, is a key driver of economic development, so it’s clear to see why education has the potential to be big business as well as a basic human right.
Global Education Sector to Grow 30%
In a report published today, analysts at Bank of America Merrill Lynch have quantified this potential and named several companies that they believe are set to benefit from initiatives to ensure every child has access to education.
Noting the socioeconomic importance of addressing the education gap in both emerging and developed markets, equity strategists Sarbjit Nahal and Valery Lucas-Leclin said they believe education for all (EFA) offers a once-in-a-generation investment opportunity to build healthy, prosperous and equitable societies, and cited UN figures that every dollar invested in education generates $10-15 in economic returns.
The global education sector, which includes primary and secondary schooling, corporate and government learning, childcare, e-learning and language learning, is currently worth $4.5-5.1 trillion, according to the report. But over the next few years we could see this sector grow around 30%, with analysts forecasting that global education will grow to become a $5.9-7.8 trillion market by 2017.
“We see the fastest growth coming from e-learning and for-profit education, as well as from emerging markets’ increasing focus and spend (notably China and Brazil),” Nahal and Lucas-Leclin wrote.
Explaining in more detail what will fuel this sector growth, the Bank of America Merrill Lynch report listed:
- Strong spending (around 5% of global GDP);
- Increasing enrolment rates (90% for primary completion, 71% for secondary enrolment);
- Demographic opportunities (booming population of 5-17 year olds in emerging markets);
- More women in education;
- Emerging markets upping their spend on education (disposable spending on education in China, India and Brazil is 10-13%);
- Increasing global mobility;
- And, a growing realisation of employment, earnings and economic development needs and opportunities (developed market graduates earn >$1 million more than secondary school drop-outs over their lifetime).
Companies to Tap Into Education Growth
So which companies are positioned to benefit from the growth of education? The report lists around 40 companies, with the vast majority being US firms and several more in China, Japan and Brazil.
For UK investors, the locally-listed companies cited by Bank of America Merrill Lynch are household names, namely Informa (INF), 
Pearson (PSON) and Reed Elsevier (REL). Unfortunately for prospective investors, Pearson and Reed Elsevier both look rather expensive at present, according to Morningstar analysts, who value Pearson at £11.25 per share and Reed at 720p. Morningstar analysts don’t currently cover Informa but our new quantitative research implies that this stock is also currently moderately overvalued.
Current shareholders who agree with Bank of America Merrill Lynch’s education thesis will no doubt be hoping to see share price improvements as the report’s forecasts come to fruition over the next few years. But for prospective shareholders, it would appear wise to wait for a share price drop before enrolling.
