Learning Technologies Group — FY17 profit and cash generation beat forecasts

Learning Technologies Group — FY17 profit and cash generation beat forecasts

Learning Technologies Group (LTG) has released a strong trading update with FY17 profits and year-end net cash comfortably ahead of consensus. The update indicates that operating margins were c 190bp ahead of our forecasts, with net cash £7.9m ahead. However, we are maintaining our FY18/FY19 forecasts, which were recently updated in our monthly book. In October, LTG announced its objective to double run-rate revenues to £100m and achieve run-rate EBIT of at least £25m by the end of 2020. While the shares look punchy on c 37x our FY18 EPS, the business is attractively positioned in an industry growing at 15-20% and we note that sustainable high-teen growth opportunities are hard to find across the broader market.

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Learning Technologies Group

FY17 profit and cash generation beat forecasts

Trading update

Software & comp services

22 January 2018

Price

74.8p

Market cap

£429m

Net cash (£m) at 31 December 2017

1.0

Shares in issue

574m

Free float

56.8%

Code

LTG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

23.6

22.6

64.4

Rel (local)

20.8

19.4

51.6

52-week high/low

74.8p

40.0p

Business description

Learning Technologies Group is a broad-based e-learning technology business, providing a range of software and services to both private enterprises and the public sector.

Next events

Final results

19 March 2018

AGM

May 2018

Analysts

Richard Jeans

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

Learning Technologies Group is a research client of Edison Investment Research Limited

Learning Technologies Group (LTG) has released a strong trading update with FY17 profits and year-end net cash comfortably ahead of consensus. The update indicates that operating margins were c 190bp ahead of our forecasts, with net cash £7.9m ahead. However, we are maintaining our FY18/FY19 forecasts, which were recently updated in our monthly book. In October, LTG announced its objective to double run-rate revenues to £100m and achieve run-rate EBIT of at least £25m by the end of 2020. While the shares look punchy on c 37x our FY18 EPS, the business is attractively positioned in an industry growing at 15-20% and we note that sustainable high-teen growth opportunities are hard to find across the broader market.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

19.9

3.9

0.76

0.15

98.6

0.2

12/16

28.3

6.4

1.18

0.21

63.2

0.3

12/17e

52.2

13.0

1.93

0.28

38.7

0.4

12/18e

56.3

14.6

2.02

0.38

37.0

0.5

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Trading update: Surprise early swing into net cash

FY17 revenues were at least £51.8m (we forecast £52.2m) while adjusted EBIT was not less than £14m (we forecast £13.1m), implying operating margins were 27.0% (25.1%) and the company has a record order book. The group ended the year with net cash of c £1.0m (we forecast net debt of £6.9m). We believe the high levels of cash were due largely to Q4 licence sales at Rustici and NetDimensions (that invoices significant recurring software licences in Q4), as well as the exercise of employee share options and cash conversion came out at the higher end of the target range of 80-90%. Further, LTG says it has “an encouraging pipeline of international acquisition opportunities as it seeks to diversify and deepen its strategic consultancy, creation, delivery, and analytics offering...”

Forecasts: FY18/19 maintained for now

We have brought our FY17 operating profit and balance sheet forecasts into line with the update and maintain our revenue forecast, which is very slightly ahead of the update. We maintain our FY18 and FY19 revenue and profit forecasts, although the year-end net cash position rises by £6.7m and £6.8m respectively. The contract change announced late last year, which resulted in revenue accelerating by c £1.7m, will act as a headwind in FY18, while the introduction of IFRS 15 (revenue recognition) could result in a small reduction in revenues and profit.

Valuation: Punchy, justified by high-teen sales growth

While the rating looks punchy at c 37x in FY18e falling to 32x in FY19e, the investment case is supported by strong industry dynamics with the corporate e-learning industry growing at c 15-20%. Our DCF model, when incorporating 15% organic growth over 10 years and 30% operating margins from FY19, suggests a valuation of 72-100p when applying WACCs of 11% and 9%. Further acquisitions could also increase the company’s scale and enhance earnings.

Exhibit 1: Financial summary

£'000s

2014

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Revenue

 

14,920

19,905

28,263

52,196

56,326

59,470

EBITDA

 

2,225

4,338

7,672

15,283

16,984

18,966

Adjusted Operating Profit

 

1,965

3,908

6,947

14,003

15,163

16,902

Amortisation of acquired intangibles

(570)

(1,203)

(3,200)

(6,000)

(6,000)

(6,000)

Exceptionals

(621)

(665)

(3,773)

(4,200)

(3,000)

0

Operating Profit

774

2,040

(26)

3,803

6,163

10,902

Associates

(160)

(62)

(205)

(400)

0

500

Share based payments

(583)

(776)

(605)

(700)

(800)

(900)

Net Interest

(158)

12

(357)

(650)

(650)

(600)

Profit Before Tax (norm)

 

1,647

3,858

6,385

12,953

14,513

16,802

Profit Before Tax (Statutory)

 

(127)

1,214

(1,193)

2,053

4,713

9,902

Tax

(35)

(258)

(133)

(1,803)

(2,322)

(2,812)

Profit After Tax (norm)

1,612

3,034

5,385

11,150

12,191

13,990

Profit After Tax (Statutory)

(162)

956

(1,326)

250

2,391

7,090

Average Number of Shares Outstanding (m)

332.03

373.51

418.62

546.77

573.28

576.14

EPS - normalised (p)

 

0.49

0.81

1.29

2.04

2.13

2.43

EPS - normalised & fully diluted (p)

 

0.46

0.76

1.18

1.93

2.02

2.31

EPS - Statutory (p)

 

(0.05)

0.26

(0.32)

0.05

0.42

1.23

Dividend per share (p)

0.10

0.15

0.21

0.28

0.38

0.52

 

 

EBITDA Margin (%)

14.9

21.8

27.1

29.3

30.2

31.9

Op Margin (before GW and except.) (%)

13.2

19.6

24.6

26.8

26.9

28.4

BALANCE SHEET

Fixed Assets

 

12,337

19,502

45,558

87,553

82,802

77,860

Intangible assets and deferred tax

11,982

18,959

41,667

83,311

78,505

73,632

Tangible Assets

339

543

708

1,059

1,114

1,045

Investments & other

16

0

3,183

3,183

3,183

3,183

Current Assets

 

9,263

13,913

14,214

29,369

37,127

45,484

Stocks

0

0

0

0

0

0

Debtors

4,905

6,608

8,866

13,637

14,716

15,537

Cash

4,358

7,305

5,348

15,732

22,411

29,947

Current Liabilities

 

(5,184)

(6,146)

(13,058)

(21,791)

(22,949)

(23,832)

Creditors

(5,184)

(6,146)

(9,806)

(18,539)

(19,697)

(20,580)

Short term borrowings

0

0

(3,252)

(3,252)

(3,252)

(3,252)

Long Term Liabilities

 

(2,007)

(2,125)

(16,004)

(16,904)

(16,904)

(16,904)

Long term borrowings

0

0

(10,582)

(11,482)

(11,482)

(11,482)

Other long term liabilities

(2,007)

(2,125)

(5,422)

(5,422)

(5,422)

(5,422)

Net Assets

 

14,409

25,144

30,710

78,227

80,075

82,608

CASH FLOW

Operating Cash Flow

 

936

4,735

3,021

13,755

13,847

16,033

Net Interest

4

12

(274)

(650)

(650)

(600)

Tax

(32)

(483)

(645)

(1,200)

(1,619)

(2,186)

Capex

(321)

(542)

(1,218)

(2,949)

(3,070)

(3,122)

Acquisitions/disposals

(4,586)

(7,779)

(14,583)

(46,739)

0

0

Financing

7,291

7,419

647

48,548

0

0

Dividends

(107)

(448)

(712)

(1,280)

(1,829)

(2,589)

Net Cash Flow

3,185

2,914

(13,764)

9,484

6,679

7,536

Opening net debt/(cash)

 

(1,170)

(4,358)

(7,305)

8,486

(998)

(7,677)

Other

3

33

(2,027)

0

0

0

Closing net debt/(cash)

 

(4,358)

(7,305)

8,486

(998)

(7,677)

(15,213)

Source: Learning Technologies Group (historicals), Edison Investment Research (forecasts). Note: *The outflow in FY17 represents the cost of acquiring NetDimensions less assumed net cash position on acquisition.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Learning Technologies Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Learning Technologies Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Carclo — Contract delays to affect H218 performance

Carclo has recently announced that its FY18 performance is likely to be lower than previously expected. This is because of contract delays affecting both the Technical Plastics (CTP) and LED Technologies (LED) divisions as well as a delay to the anticipated ramp-up in a non-medical project for CTP, which management expected would benefit H218. We reduce our FY18 and FY19 estimates, introduce FY20 estimates and revise our indicative valuation range from 177-187p/share to 145-154p/share.

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