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Learning Technologies: Riding high on a financial turnaround

Publication Date: 12 Nov 2018 - By Manika Premsingh By Manika Premsingh
Actionable
Differentiated

Equity Fundamental Equity UK Technology

First things first - e-learning services and technology provider Learning Technologies (LON:LTG) – is definitely worth having on the radar. It showed a turnaround in profits for the 6 months ending 30 June 2018 (H1 2018) as well as a significant bump up in revenue, sending its share price soaring.

With its expansion through acquisitions taking place at a fast clip, the company is poised to have a bigger footprint in the global e-learning market going forward. It is no wonder then, that Learning Technology’s shares are pricey at present.

The share price has averaged at around 125p, a level that is 30% higher than the 52-week average to date. This was largely on account of a sharp spike immediately after the release of the H1, 2018 financial results, though there has been some correction since.

Learning Technologies reported revenue of £33.8m for H1 2018, which is a significant increase from the £21m during the corresponding period of the previous year. But this is hardly all: The company showed an operating profit of £948,000, a turn around after reporting a loss in H1, 2017. It is worth noting that the operating profit before consideration for acquisition related spends is significantly higher, at £2.4m.  

The acquisition spends are for US-based PeopleFluent Holdings, which was acquired earlier this year in an all cash deal of $150m. Inorganic growth through acquisitions has been the company’s strategy for the past few years, with no fewer than seven such deals since 2014 across the UK, USA and in Hong Kong.

The company’s wider geographical footprint is evident in the numbers – for H1 2018, 59% of the revenues came from outside of the UK, as opposed to 46% for the full year 2017.

Wider global dispersion of revenues serves as a good hedge against cyclical economic downturns in specific markets. This striving towards diversification is evident in other aspects of revenue segmentation as well. Learning Technologies has seen an increase in recurring revenues overtime, and a reciprocal decline in non-recurring revenues, allowing for greater stability.

For H1 2018, recurring revenues were at 51% of the total, up from 38% for 2017 as a whole. Additionally, revenue is well distributed among clients, with its top 21 clients accounting for only 27% of the total revenues.

Conclusion: The company has an optimistic outlook for the remainder of the year, which also explains its strong performance at the stock market. The only catch, however, is the fact that it is expensive at a 154x price-to-earnings ratio (TTM). This is far more than that for any of the companies in its peerset. It can thus be a share to buy on small corrections, since a significant one is unlikely to be witnessed anytime soon.  

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Manika Premsingh

 

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