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Tribal group: Turnaround continues, despite challenges

Publication Date: 25 Sep 2018 - By Manika Premsingh By Manika Premsingh
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Equity Fundamental Equity UK Consumer

Despite a continued turnaround, education support services provider – Tribal Group – faced rough weather recently as its CEO Ian Bowles, whose term saw the company's return to health, passed away on 29 August. The share price started correcting in the wake of his death, falling to 86.9p by 31 August, the lowest in over a month. 

There has been some recovery since, but the price remains rangebound between 86-90p. This compares unfavourably to the average of 91.4p seen between the release of a strong set of financials for the 6 months up to June 2018 (published on 16 August), and the news of Bowles’ death. 

Bowles inherited a company in the red when he joined in March 2016. Tribal group reported a net loss of £2.6m for the half-year ending June 2016. However, by the next year, the turnaround had started, with the company reporting net profit of £1.6m in June 2017 and a return to profits for the full-year of 2017 as well. The trend continued to improve for the half year ending June, 2018, with an 83% improvement in profits to £2.9m. 

The leadership vacuum has understandably created some trepidation in investors’ minds, which has reflected in the stock price movements. Considered over a longer period of time, however, it is worth noting that investors are still bullish on the stock.

Tribal Group’s share price witnessed a sharp upturn from the beginning of July 2018, and has averaged at 88.2p since, a 9.5% increase over the average of 80.6p seen during the first half of the year.

The stock’s P/E is at around 65, significantly higher than that of its peer group companies in the business support services segment. While this could represent overvaluation of the company, it may well be faith in Tribal Group’s prospects. 

Tribal Group’s education management software and services are divided into three segments – student management systems, quality assurance systems and education quality improvement services (i-graduate). Student management systems, the segment which accounted for over 70% of 2017 revenue, is expected to continue showing robust growth.

As per the company’s outlook on the segment, revenues are expected to remain stable during the second half of 2018, while margins will remains consistent with the first half of the year. This should bode well for Tribal Group’s overall results. 

The robust revenue potential is backed by healthy economic growth in international markets like Australia and New Zealand, where Tribal Group has a leading position, alongside its successful UK business. Furthermore, continued cost cutting efforts could improve margins.

In summation, Tribal Group's healthy net cashflows remain a positive for the company’s performance, further suggesting that it should stay on investors' radar. The group has taken a massive jolt of its CEO and turnaround master's untimely death, but shows every sign of emerging from it stronger to assuage market jitters. 

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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