Learning Technologies Group PLC (LON: LTG) – Extended global reach into new customer segments and new markets.

Learning Technologies Group Plc (LON: LTG) is a FTSE AIM UK 50 Index listed Company, which is engaged in the business of digital learning and talent management. The Group provides digital transformation services to large organisations. The Company is having operations worldwide, which includes Canada, Hong Kong, Brazil, Australia, Germany, the UK, and the US. LTG aims to build a dynamic portfolio of international talent management business, digital learning and complementary businesses through robust organic growth and strategic acquisitions. The Group has a strong partnership network, which enables them to deliver expertise beyond capability. The Group has divided the operations into two reportable segments being Software & Platforms division and Content & Services division.

 (Source: Presentation, Company Website)

Recent Trend of Dividend Payments

(Source: LSE, chart created by Kalkine Group)

The Company had a progressive dividend policy based on robust cash generation and an improving trading outlook. LTG will pay an FY20 final dividend of 0.50 pence per share on 25 June 2021 with respect to shareholders approval. The ex-dividend date will be 03 June 2021. Moreover, it will take a total FY20 dividend to 0.75 pence per share.

Growth Prospects and Risk Assessment

Learning Technologies Group is a pioneer player in the talent management and digital learning market. LTG’s financial performance is underpinned by a high proportion of recurring multi-year revenues, a strong balance sheet, and excellent cash generation. It has established a unique set of capabilities with a wide range of services and partnerships. It operates within the rapidly growing learning and talent management markets. LTG has a high-growth business model with offices in the UK, Europe, North America, and Hong Kong.

The Company had made eight acquisitions in seven years, which reflects that LTG is well-positioned to capture the long-term structural growth opportunity. Moreover, the recent acquisition of Open LMS, PDT Global, Bridge and Reflektive would enhance the earnings by complementing the existing proprietary software solutions. Overall, it is well-positioned to capture long-term structural growth opportunity with a diversified client base and increased presence in the UK market.

 (Source: Refinitiv, chart created by Kalkine Group)

(Source: LSE, chart created by Kalkine Group)

However, the growth trajectory can be impacted by several factors, such as the business interruption and disruption caused by Covid-19, financial risk arising from foreign exchange fluctuations, and compliance with debt financing facility covenants.  Moreover, the project overruns could lead to loss of margins and profitability for the Company. Also, the inability to integrate the acquired businesses successfully could lead to inefficiencies. Furthermore, there are operational risks pertinent to technology changes, increased competition, and failure to retain customer contracts.

Industry Outlook Dynamics

As per the Global Market Insights, the global e-learning market size was over US$200 billion in 2019 and it is expected to grow at a CAGR of close to 8% between 2019 to 2026 and will be more than US$375 billion by 2026. The other fastest-growing segment of the computer software and service industry includes Cloud Data, Artificial Intelligence, Machine Learning, Robotics and Blockchain. The market opportunity for the Company is attractive due to the gap between current and future workforce capability in the competitive market. Moreover, mobile-learning, social learnings and micro-learning are also boosting the market size, while the Covid-19 pandemic has further accelerated the demand for e-learning solutions.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Learning Technologies Group PLC.

Financial and Operational Highlights (for the twelve months ending 31 December 2020, as on 25 March 2021) 

(Source: Company Website)

• During FY20, LTG demonstrated a resilient financial performance, underpinned by robust cash position and high recurring revenues.
• The Company also raised £81.8 million through an equity placing to support the future growth and delivered eight acquisition during FY20, contributing to Pro-forma revenue of £50 million.
• LTG reported 81% recurring revenue in FY20 against 74% in FY19. Adjacently, adjusted EBITDA was maintained above 30%, reflecting high-quality earnings.
• The Content & Services revenue plunged 22% year-on-year in FY20; however, solid recovery is expected in FY21.
• On the other hand, Software & Platforms revenue reported a 13% year-on-year growth in FY20, which was also supported by acquisitions.
• The Board also recommended a final dividend per share of 0.50 pence, which was in line with FY19. Therefore, the Group is committed to a progressing dividend policy.
• The FY21 has also started in line with management expectations since the Group maintained a net cash position of around £25 million (at the end of February 2021) post acquisitions of PDT Global, Bridge, and Reflektive.

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 30 March 2021, at 9:06 AM GMT, Learning Technologies Group PLC’s shares were trading at GBX 153.70, down by 0.13% against the previous day closing price. Stock 52-week High and Low were GBX 190.00 and GBX 112.00, respectively.

From a technical standpoint, 200-day SMA (GBX 146.70) and 200-day EMA (GBX 150.70) support an upside potential. 

In the last two years, Learning Technologies Group PLC’s stock price has delivered a return of ~116.86% return as compared to ~25.11% return of the FTSE AIM UK 50 index and a negative 1.60% return of FTSE All-Share Technology index, which shows that the stock has outperformed the benchmark index and the benchmark sector.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Business Outlook

LTG has proven that it can successfully grow the business organically and through strategic acquisitions. It has comprehensive and industry-leading capabilities to serve a diversified base of clients. The Company has already been progressively increasing the proportion of recurring revenue, EBIT margins, and return on capital employed over the years. It has a strong balance sheet, and substantial cash resources to navigate through the short-term challenges presented by the Covid-19 pandemic. Furthermore, the Company’s investment in future business would help in achieving further sales growth and operational efficiencies. Also, the market dynamics and recent trends offer ample opportunities on a continuing basis to stay ahead of the curve in terms of competitive positioning.

The FY21 is expected to be a year of recovery for the Content & Services division. The Group maintained a robust balance sheet post three acquisitions in FY21 so far with net cash of £25 million at the end of February 2021. In FY21, the Company has already undertaken the acquisition of PDT Global, Bridge and Reflektive to build the platform for further growth. In a nutshell, it is on track on achieving the run-rate revenue of around £230 million and an adjusted EBIT run-rate of nearly £66 million by the end of FY22.

Considering the resilient financial performance, robust liquidity position, lower debt-equity ratio, acquisitive growth opportunities and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Learning Technologies Group at the current price of GBX 153.70 (as on 30 March 2021 at 9:06 AM GMT), with lower-double digit upside potential based on 38.42x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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