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Tribal's textbook international story

TIP: Tribal is making a name for itself with high-profile universities around the world and, at a discount to peers, the shares look worth examining.
June 12, 2014

Universities like to know what their students are up to and ticking names off a register just doesn't cut it these days. That is where Tribal Group (TRB) comes in. Tribal sells software to universities that lets them keep tabs on their student body. Skipping class, borrowing a library book, acing an exam; it all gets entered onto Tribal's student administration system.

IC TIP: Buy at 180p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Market leading positions in UK education
  • International expansion
  • High-profile recent client wins
  • Strong balance sheet
Bear points
  • Second-half weighting
  • Diminishing work for Ofsted

The education sector certainly appears to have given Tribal's system top marks. It's currently used by 60 per cent of the UK's higher education facilities and by half of the prestigious Russell Group of Universities, including the University of Oxford.

That dominant UK position is increasingly being used as a springboard to enter overseas markets; presumably having Oxford University on their books has also helped open a few doors. In 2010, international revenues represented about 10 per cent of the group. Last year, that proportion had grown to 26 per cent. A stream of recent new international customers suggests further growth this year.

Tribal announced in August that it had signed up its first major North American university - the University of British Columbia in Canada. A trading update in November brought details of a new partnership with University of California, Berkeley. And the most recent trading update, in May, announced Tribal's market entry into South Africa with a contract to supply its student management system to the massive University of South Africa.

The group also has a sizable footprint in Australia rolling out student management systems for all state-run schools and technical and further education colleges in New South Wales. Tribal says it will soon be providing student management systems to over a quarter of all Australian schools. Two recent acquisitions in Australia - one of a cloud-based student management system provider and another of a complimentary school student management firm - have further strengthened Tribal's offering.

The opportunities overseas appear to have left Tribal feeling relatively relaxed about the reduction of its work with Ofsted in the UK. Ofsted recently announced that it was bringing school inspections in-house from September 2015, rather than relying on its current model of using outside providers such as Tribal. In response to the Ofsted announcement, Tribal said that its expectations for 2014, 2015 and 2016 were unchanged and that its focus was on the international market where it was seeing good momentum.

Broker WH Ireland is looking for 7 per cent earnings growth this year, but says that its forecasts remain conservative on the international opportunity, which is higher margin than the traditional UK business. Tribal said in its recent trading update that its results this year are expected to be more second-half weighted than usual due to the timing of contract closures and software installations. The trading update knocked the shares, which had been bubbling along near a seven-year high. But what that has done is open up an interesting entry point.

TRIBAL (TRB)
ORD PRICE:180pMARKET VALUE:£169m
TOUCH:180-183p12-MONTH HIGH:210pLOW: 154p
FWD DIVIDEND YIELD:1.1%FWD PE RATIO:13
NET ASSET VALUE:73p*NET DEBT:7%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201110810.18.41
201211512.810.91.25
201312514.512.21.6
2014**13215.513.01.8
2015**13916.413.72.0
% change+5+6+5+11

Normal market size: 1,500

Matched bargain trading

Beta: 0.4

*Includes intangible assets of £95.4m, or 102p a share

** WH Ireland forecasts