Learning Technologies (LTG) has evolved into a bigger and more diversified company since we tipped its shares in October 2017. The transition has come courtesy of its $150m (£124m) acquisition of PeopleFluent, a US-headquartered, cloud-based platform for 'talent-management' (ie, recruitment and training). The deal was announced in April 2018 and completed in May – fuelled by a share placing and debt financing.
Rapid sales growth
Strong recurring revenues
Better visibility
Huge market opportunity
Acquisition integration risk
Dependent on buoyancy of its markets
PeopleFluent enables LTG to transcend digital corporate learning and enter a complementary software market. No bad thing; the corporate training market is estimated to be worth around $365bn, and its outsourced digital learning segment is said to be growing by a tenth each year. The talent market is estimated to be worth over $6bn, and growing by approximately 9 per cent.
Investors became cautious about LTG towards the end of last year, and into the start of 2019. The shares plunged from a high of almost 170p last September to just 59p in February. This stemmed partly from broader concerns about the software sector – and highly-rated, acquisitive companies in particular. Investors were also, perhaps, unconvinced by the group’s organic growth prospects.
That said, positive news in the intervening months has triggered a recovery in the shares. While they’re still well below their previous peak, this could constitute another buying opportunity.
LTG’s latest trading update – delivered in July – revealed that first-half revenues are expected to land at approximately £62.5m, up 85 per cent. Adjusted operating profits are due to come in ahead of expectations at no less that £20m, up 125 per cent, on a margin of around 32 per cent, up from 26.3 per cent. Management believes full-year adjusted operating profits will be “materially ahead of expectations”.
Improved visibility has come in the form of more recurring revenues, which now make up 67 per cent of sales, up from 51 per cent. This is largely thanks to PeopleFluent, which is expected to return to growth in 2020. At the time of its acquisition, management had anticipated a near-term drop in revenue, with medium-term growth.
Most encouragingly, within LTG's content and services division, organic sales were “up significantly” against last year’s second half. During 2018, this area endured an 8 per cent decline. Helped by the likes of a multi-million dollar US contract win for ‘Leo’ – the division’s strategic consultancy business – management anticipates “substantial” second-half growth here.
| Learning Technologies (LTG) | |||||
| ORD PRICE: | 105p | MARKET VALUE: | £701m | ||
| TOUCH: | 104-105p | 12-MONTH HIGH: | 167p | LOW: | 59p |
| FORWARD DIVIDEND YIELD: | 0.7% | FORWARD PE RATIO: | 21 | ||
| NET ASSET VALUE: | 25.3p† | NET DEBT: | 7% | ||
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) | |
| 2016 | 28.3 | 6.4 | 1.2 | 0.21 | |
| 2017 | 51.4 | 12.7 | 2.0 | 0.30 | |
| 2018 | 93.9 | 25.6 | 3.2 | 0.50 | |
| 2019* | 126 | 37.8 | 4.4 | 0.60 | |
| 2020* | 133 | 42.8 | 5.0 | 0.70 | |
| % change | +6 | +13 | +14 | +17 | |
| Normal market size: | 20,000 | ||||
| Beta: | 2.71 | ||||
| †Includes intangible assets of £242m, or 36.4p a share | |||||
| *Numis forecasts, adjusted PTP and EPS figures | |||||
