LTG ups margin forecast after results delay

Learning Technologies’ (LTG) shares plummeted by more than 15 per cent after a recent announcement that its results would be delayed. A late finding in the audit process relating to the presentation of the 2020 and 2019 balance sheets was to balme. Jonathan Satchell, chief executive of the digital workplace services company, told Investors’ Chronicle that he hoped a “late shock in one of the audit reviews due to the application of IFRS15” – trade receivables and contract liabilities had been presented gross rather than net and the corrections have no impact on revenue, profit, net assets or cash generation – wouldn’t obscure a set of “stellar results” in which revenue almost doubled, margin forecasts were raised, and the full-year dividend was increased by a third.

Berenberg analysts attributed the share price drop to market nervousness about the progress of US-based workforce performance solutions provider GP Strategies, which was acquired in October last year for £288mn. The results delivered positive news on that front, confirming that integration is ahead of schedule and that an increased 12 per cent operating margin for the year is expected (up from the previously flagged 11 per cent, with a run-rate in the mid-teens forecast for the end of the year). The analysts said that this should drive a recovery in the shares – they were up by 5 per cent on early trading – and they now expect a 4 per cent uplift in operating profit on previous forecasts.

GP Strategies’ revenue contribution demonstrates just how transformational the acquisition is for LTG, as it accelerates the company's metamorphosis into a global business. It posted £83mn in sales, a third of total revenue, and on a pro-forma basis for the full year would have taken almost 70 per cent of all sales. Satchell said that LTG can now present "a broader offering at an escalated, advanced level".

But there was also a solid performance evident across other divisions, with 'software as a service' (SaaS) and long-term contracts underpinning revenue growth. SaaS progress and first-quarter acquisitions bumped software and platforms revenue up by a third to £131mn, while strong demand helped content and services sales rise by 39 per cent to £44.8mn.

Numis has the shares trading on 18 times forward 2022 earnings, and 15 times forward 2023 earnings. This looks undemanding given the broker expects a more than doubling of revenue to £531mn for the 2022 financial year, along with the good news on the margin outlook. Buy.

Last IC View: Buy, 213p, 21 Sep 2021