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Questor: at 19 times earnings, Learning Technologies looks cheap for a tech stock
Questor share tip: the ‘e-learning’ company has made some canny-looking acquisitions and is expected to grow at a good clip
Making money from education is not as easy as it used to be.
While FTSE 100 firm Pearson has struggled to adapt to life beyond the college textbook, its shares have gone nowhere fast. Even those businesses billed as the great disrupters have underwhelmed.
So-called “Moocs” (massive open online courses) were meant to transform distance learning with the power of the internet, hosting a myriad of free courses for which students might pay for accreditation. Yet only a fraction of those learners complete their studies and newish platforms such as Udemy have been hit by piracy claims.
There might be more opportunity in the workplace. Cynics suggest that the current jobs boom is down to stingy employers hiring new staff rather than training old ones.
A more positive spin is that the rise in automation is making even entry-level roles in areas such as supply chains, customer service and sales more complicated. Rather than the machines taking over, staff must be better trained to push the right buttons.
In truth, making sure employees know what they are doing is as important for Network Rail, with appropriate safety training to work on the tracks, as it is for Jaguar Land Rover, whose sales teams must be briefed on the finer points of their new model.
Both are clients of Learning Technologies Group, which operates at the digital end of what is estimated to be a global corporate training market worth $365bn (£280bn). When what was then called Epic Group reversed into In-Deed, a cash shell quoted on Aim, in 2013, it noted that there were 3,000 “e-learning” companies in Europe with no dominant players.
What became LTG quickly set about acquiring some of them. Now just a third of revenues come from its content and services arm, and two thirds from software and platforms.
Beyond online and mobile learning modules, last year LTG broadened out into so-called “talent management” software with the $150m acquisition of PeopleFluent, which tracks employees’ recruitment, pay and annual appraisals and gives the group greater presence in America.
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LTG is fishing in the same pond as SkillSoft, Oracle and Accenture and it is true that some of the biggest employers will always choose a giant provider that can supply all of their human resources and enterprise resource planning (ERP) software in one go. But many will not. LTG believes it can hit £200m in revenues and earnings of at least £55m by the end of 2021 – roughly doubling in size from today.
The chief executive, Jonathan Satchell, started his first business in 1992 selling subscriptions for Accountancy TV, a joint venture between the Institute of Chartered Accountants and the BBC, so he should be able to make the numbers add up. He and veteran chairman Andrew Brode, who led professional publisher Wolters Kluwer UK back in the day, own 30pc of the shares between them.
LTG became overhyped last autumn and fell sharply when the content and services arm reported disappointing sales. What sparked fresh interest recently was the $18m acquisition of Breezy, which has a recruitment tracker application that will plug some of PeopleFluent’s shortcomings, as well as take the group deeper into the market serving small and medium-sized companies.
Analysts at Peel Hunt, the broker, expect the deal to boost earnings by 4pc from next year. Last week their counterparts at Canaccord Genuity nudged up earnings per share forecasts by 2pc-3pc, suggesting that the market is pricing in organic sales growth of 0pc-5pc when LTG should be capable of 5pc-10pc.
That tallies with the view of Goldman Sachs, the company’s joint house broker, which forecast that over the next four years LTG will deliver annual growth of 7pc in organic revenues, 11pc in adjusted operating profit and 14pc in earnings per share.
After Breezy, the company has about £45m to spend on in-fill deals without breaching its self-imposed rule of keeping borrowings below twice earnings. The shares trade at 19 times next year’s forecast earnings, which presents an opportunity in the highly rated technology sector.
Questor says: buy
Ticker: LTG
Share price at close: 85.9p
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