The digital classroom

True, such elisions might sound like buzzwords. But that should not belie the potential market opportunity that each represents. And to an increasing extent, the very same can be said of "EdTech" – educational technology.

Indeed, according to research house Metaari, global investment in education technology companies reached a whopping $9.6bn (£7.4bn) in 2017. This marked a considerable 31 per cent rise on the record $7.3bn seen in 2016.

What’s driving this momentum? It seems fair to assume that one major factor is the almost ubiquitous presence of technology in our lives. Everything from shopping, to office-based work, to watching TV has now been enhanced by automation and connectivity. This transition towards seamless, efficient and – perhaps most importantly – personalised services has been facilitated by major advances in computer processing power, and greater ownership of smartphones. In fact, in a recent report, OfCom – the UK’s communications regulator – found that more than three-quarters of UK adults use such a device today.

It makes sense for education to adapt to this new epoch – engaging students in schools, and within corporate learning environments, via the channels that they have become accustomed to elsewhere.

Meanwhile, issues around costs and funding continue to dog the education sector. Just last month, headteachers from across the UK marched on Westminster, highlighting pressures on school budgets.

Higher education has also become more expensive for would-be students. England’s universities can charge up to £9,250 per year for an undergraduate course. And the situation is more extreme across the pond. Between 1987-88, a four-year degree at a US private college would have set one back $15,160 (£11,626). This climbed to $34,740 for 2017-18.

Ostensibly, greater incorporation of tech could help to ease the burden for pupils, overworked and underfunded teachers, and governments – while simultaneously keeping the process of studying interesting.

True, edtech comprises an emerging market, and many business operating in this space are privately-owned or start-ups. But there are London-listed opportunities for UK retail investors to consider – and more IPOs might ensue.

Old school

The rise of the digital classroom has both spurred, and been spurred, by innovative tech businesses. But there are also older organisations in the market, striving to keep pace.

One of the better-known players in this space is Pearson (PSON). Pearson historically ran a broader portfolio of media companies. Over time, it sold off the likes of the FT Group (which publishes this magazine) and its stake in The Economist, to concentrate on education.

However, this shift has not been straightforward. In January 2017, the group said that its "higher education business declined further and faster than expected in 2016" – marking the latest in a series of profit warnings. At the time, the group said it was "taking more radical action to accelerate our shift to digital models". Simultaneously, it also announced plans to sell its holding in publisher Penguin Random House.

Fast-forward to the most recent half-year results to June 2018, and Pearson reported a revenue decline of 9 per cent to £1.9bn. Meanwhile, management continued to expect a second-half reduction in net sales for its US higher education courseware business amidst ongoing market pressures. In fairness, the group’s underlying sales did pick up by 2 per cent. Its largest market, North America, enjoyed a small improvement – helped by the aforementioned courseware offering and the 'Connections Academy', a virtual school business. And the company said it expected to see underlying profit growth in 2018.

Still, Pearson’s sales are typically weighted towards the second half, which includes the start of the academic year – putting the onus on the next set of results.

Digital migration

Relx (RLX) has seemingly better withstood the challenges that the digital age has brought. An information services provider, Relx has a scientific, technical and medical business that helps universities improve research strategies and offers articles and insights to professionals. Under this umbrella sits The Lancet, a medical journal whose content has migrated online – rendering it less reliant on print.

At the smaller end of the scale, you’ll find RM (RM) – an edtech stalwart founded in 1973. Yes, RM might conjure images of the computers used in IT lessons of old. But it also appears to have surfed the new wave of digital transformation successfully.

The group no longer purveys these machines. Its dominant business is now 'resources' – a provider of educational supplies to schools and nurseries. Supported by an acquisition last year, this bolstered the group’s 33 per cent sales growth to £94.9m for the half year to May. But RM’s other, IT-focused businesses – 'results', which offers IT software and e-assessment services, and 'education', which provides ICT software to UK schools and colleges – also fared reasonably well. Sales in both segments did decline, but the former’s international pipeline strengthened while the latter’s adjusted operating margins improved.

Immersive learning

As we explored recently, the virtual reality market finally appears to be taking off. And education has been hailed as one of its more practical applications.

That’s good news for small-cap VR Education (VRE), which joined Aim in March 2018. VRE’s 'Engage' model immerses users in virtual reality, allowing them to explore different worlds from their desks. This aims to "overcome certain limitations of currently available online courses", which are known as 'MOOCs' – massive online open courses, for distance learners. Research has suggested that less than 16 per cent of students finish online courses – arguably because they’re isolating and not hugely engaging. Virtual lessons could well offer a solution to this.

Still in the testing phases, Engage is expected to launch by the end of this year. So far, most of VRE’s revenues have stemmed from its ‘Showcase’ experiences such as 'Titanic VR'. And the company’s trading will, one can assume, be partly dependent on the successful proliferation of the VR headset and hardware market – something largely out of its control.

Office education

Beyond VRE’s Engage education platform, it's also developed an enterprise offering for companies. And this takes VRE into the corporate realm of the learning technology market, which could perhaps be deemed a nuanced segment of the broader edtech space – one with its own drivers and challenges.

Beyond the school walls, professionals still require training to ascend the ranks – or simply to remain compliant. This is particularly the case in highly-regulated industries such as finance. And while, in the past, real-life trainers might have frequented office buildings to deliver ‘upskilling’ classes, digital dissemination of materials is arguably far more efficient. Not to mention the ease with which progress can be tracked online.

Learning Technologies (LTG) is perhaps the best-known corporate digital learning specialist on the London public market. An acquisitive company, LTG comprises various portfolio businesses – one of which, 'Preloaded', also offers VR learning experiences. Earlier this year, LTG made its largest purchase to date – PeopleFluent, a cloud-based talent management platform, for $150m. And while the latest half-year numbers to June were strong, we simultaneously learnt that full-year profits will be "significantly ahead" of management’s expectations.

This performance is particularly encouraging in the context of a burgeoning but fragmented corporate digital learning market – said to be worth around $90bn-$110bn in 2017, and growing by at least 10 per cent each year.