Contract closures trip up Tribal’s growth plans

Tribal Group’s (TRB) progress towards becoming a software-as-a-service (SaaS) business was not enough to lift investors’ spirits, after the company put the brakes on the next two years’ growth expectations, sending shares down by 9 per cent on the morning of its results.

The Aim-listed company supplies 65 per cent of UK universities with education software, including admissions portals for applications and student experience benchmarking.

Lower growth over the next two years is expected as historical contracts come to an end, including the loss of two Australian universities from its Callista platform. 

Cloud and Edge products are now the great hope for Tribal. Over the next five years, the firm aims to double annualised revenues to almost £100mn, as well as lift the Ebitda margin percentage to “low-30s”, from 20.5 per cent in the year to 31 December 2021.

Nascent progress on this front is encouraging. Overall annualised revenues grew by 7 per cent to £50mn over the year to 31 December, but this was outstripped by the organic growth rates for Cloud and Edge products, coming in at 31 per cent and 50 per cent, respectively. 

As with most SaaS products, Edge products have lower initial margins that will improve as they scale, and this pushed Tribal’s overall gross margin down from 53 per cent to 51.5 per cent. 

Two bolt-on acquisitions of edge-focused Semestry and Eveoh's "My Timetable" for a combined consideration of £6.8mn have also added new revenues.

“We have a record sales pipeline as we enter the current financial year,” said chief executive Mark Pickett, who noted that the education market globally is “becoming more sophisticated and attuned to the benefits of SaaS and cloud offerings”.

A slower couple of years do not dent the longer-term growth potential for this market, and on a forward PE of 18.8, Tribal is hardly expensive when compared with some other peer ratings. However, the education sector is still reeling from the Covid-19 pandemic when many institutions were forced to physically close, so while a pick up in the end-market is likely, it is difficult to time. Hold for now.