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Positive guidance from Learning Tech

The group said it would acquire the remaining stake in Watershed, and outlined 2021 targets
November 16, 2018

A double-barrelled update from Learning Technologies (LTG) lifted the group’s shares by a tenth on its capital markets day.

IC TIP: Buy at 120p

First, LTG is acquiring the 70 per cent of Watershed Systems that it doesn’t already own. The company bought a 30 per cent holding in Watershed – a software-as-a-service business, which develops learning analytics – in January 2016 for $3m (£2.3m). It will acquire the remainder for an initial $2.9m, and up to $8.7m in deferred consideration – subject to “significant incremental revenue growth” from 2019 to 2021.

Watershed saw pre-tax losses of $0.5m for the nine months to September 2018, but should be earnings positive from 2020. Under its full control, LTG’s management anticipates the development of new routes to market for Watershed’s products.

Second, LTG revealed new objectives for the end of 2021: it now targets run-rate revenues of £200m and run-rate operating profits of at least £55m. While any acquisitions or research and development expenses are expected to be funded via internal cash flows and debt financing, the group would consider shareholder financing for acquisitions if this could accelerate or amplify its goals.