Learning Technologies' margin improvement is promising

Learning Technologies Group (LTG) is still digesting its massive acquisition of GP Strategies. The workforce consultant and e-learning company was acquired in October 2021 and now makes up 67 per cent of the group revenue. This is up from 32 per cent last year, reflecting the fact this was the first full year since the GP deal.

So far, the acquisition is going to plan. LTG's constant organic revenue growth was 5 per cent while the adjusted operating margin expanded from 9.2 per cent to 12.2 per cent. Merging the businesses enables them to share operating costs – such as HR and finance teams – and management expects the margin to extend to 14 per cent by the end of the year.

But the GP acquisition had a diluting effect on the group operating margin, which from fell from 21.2 per cent to 16.9 per cent. The software and platform business is more profitable as it requires less manpower than GP, which is a service business.

The software business makes up 25 per cent of total revenue. Its sales were up 15 per cent while its operating margin slipped one percentage point to 26.9 per cent. The company says 97 per cent of the software revenue is recurring which makes it resilient. Also, as a lot of the training provided is compliance based, customers can’t easily cut it from their budgets.

The downside is the GP acquisition didn’t come cheap and rising interest rates pushed up the net finance charge to £10mn from £2.3mn. Combined with the economic headwinds, this has contributed to house broker Numis trimming its 2023 adjusted EPS forecast by 10 per cent to 8.3p. But with a FactSet forward price/earnings ratio of 13.8 – and profitability moving in the right direction – the price still looks affordable. We stick to buy.

Last IC View: Buy, 22 Sep 2022, 130p