Learning Technologies group is recession resistant

Learning Technologies Group (LTG) provides a 'blended' corporate education service to its clients. By ‘blended’, management means a combination of in-person and remote learning. As it is corporate tutorage, as opposed to say, maths or history, there is an element of necessity, particularly in matters of compliance.

This may sound a little dry. However, it means LTG is reasonably recession-proof. Compliance training is essential for businesses as it is often mandated by regulators. The tail risk  for businesses in cyber security and GDPR is also very high. A small expense on training could save them a large pay-out in the future.    

Broker Goldman Sachs agrees with this thesis, saying that LTG is “insulated but not immune from macro”. Management admits there is some “discretionary” training, but that it makes up only around £30mn of revenue. Group revenue was £282mn for the half year, which gives it a margin of safety.

The only issue would be if customers went bankrupt. This seems unlikely given most of the customers are blue-chip names and based in America. The GP Strategies purchase provides a lot more exposure to the US market which will be more resilient than Europe next year. In the half year, £184mn of revenue was generated in the US – equal to 65 per cent of group sales.

SaaS and long-term contract revenue as a proportion of total revenue fell from 77 per cent last year to 71 per cent this year. The GP Strategies purchase diluted the recurring revenue proportion and it diluted group margins because GP does mostly in-person training, rather which is more costly. The group adjusted operating margin dropped 111 basis points to 15.6 per cent from last year.

Management is keen to point out that margins at GP Strategies are improving. Last year, the operating margin was 4.5 per cent before moving up to 10.5 per cent in the first half of this year. In May and June of this year it was 12.6 per cent. GP Strategies like-for-like revenue growth was 4.6 per cent on a constant currency basis.

LTG expects to deliver ahead of consensus expectations for the full year. Goldman Sachs upgraded its 2023 EPS forecast to 9.71p up from 8.74p. This gives an affordable looking 2023 PE of 12.2. A B2B product which is mostly essential to businesses is enticing in an economic downturn. We stick to buy.  

Last IC View: Buy, 134p, 03 May 2022