Investment Highlights
 

1. Tribal Group Plc (LON: TRB) has a strong global presence, with operations in more than 50 countries and partnered with around 1,400 colleges and universities worldwide.

2. The group’s customers include alternative, public and private education institutions with students ranging from 50 to 200,000 students.

3. The strategic acquisition (first business acquisition for five years) of Crimson Consultants (which is now called as Tribal Dynamics) will continue to grow the market share through cross-selling, upselling and will further improve margins.

4. The company, with its software and services such as Student Information Systems, Education Services & Analysis and Benchmarking, is helping institutions to enhance students competitive advantage and delivering world-class experience.

5. The group has a decent adjusted operational performance, with robust balance sheet for the current period.

6. The Group is likely to reduce technical complexity, and thus IT cost and Personnel cost with its Tribal Edge Strategy.

7. The company remained focused on building strong foundations and has made significant operational advancements.

8. TRB is confident towards its business model and management team to tackle the uncertain times created due to coronavirus pandemic.

9. Tribal Group has integrated its innovative solutions, expert analysis and unique data, which helps in providing Comparable, Consistent and Complete solutions.

10. Investing in TRB offers decent value buying opportunity, considering new contracts been signed lately, and sound vision of management to scale up business operations growth trajectory.
 

Tribal Group PLC (LON: TRB) is continuously gaining business through the existing and new customers.

Tribal Group PLC is a provider of software and services related to training and education learning. It caters a broad range of customers among public, private and alternative education institutions with students ranging from 50 to 200,000 in the count.  Its portfolio consists of Student Information Systems, Student Surveys and varied range of education services. It works with several educational institutions, Government and state bodies, employers and trading providers in more than 55 countries. It employs around 850 people worldwide and caters over 600 universities, 100s of colleagues, and with more than 1,000 schools. Its Student information system software module span across Marketing & Recruitment, Admissions & Enrolment, Student Welfare & Support, Learning & Studying, Assessment & Examinations, Business Engagement, among others, whereas education services provide solutions from early years to higher education students. The Company was incorporated in England and Wales and listed on the London Stock Exchange since 8^th July 2002.

On 24^th June 2020, The Group will hold its annual general meeting.


(Source: Company Website)

Key Statistics



Segments at a Glance

The Group operates through the following two business units:
 

Student Information System:

1. Provides system and services related to different education segments and offers tailormade solutions as well.

2. Represented around 75 per cent of sales in 2019.
 

Education Services:

1. Comprises student surveys, inspection and improvements services and benchmarking requirement across education system.

2. Represented around 25 per cent of sales in 2019.
 

Geographically, the Group segments its revenue into the three major regions – UK, Asia Pacific and Rest of World. The Rest of World includes Canada, United States and the Middle East. Most of its revenue is generated from the United Kingdom operations.

A Glimpse of Key Performance Indicators in 2019 vs 2018

The financial and operating performance of the Company can be measured and understood by the key performing indication provided in the picture below:


(Source: Annual Report, Company Website)

Besides the above metrics, the overall workforce was reduced by 2.3 per cent from 900 (at 31^st December 2018) to 879 (at 31^st December 2019), despite adding 42 people from the acquisition of Crimson Consultants. The change was primarily driven by the change of business focus to the Tribal Edge platform from the School Edge product.

Significant Developments of 2020

1. 7^th April 2020: The Board announced the revised date for the annual general meeting (AGM), which will now take place on 24^th June 2020. Further, the group suspended the final dividend for 2019 as a liquidity measure for battling uncertainties presented by the Covid-19 mayhem. 

2. 13^th March 2020: The Group settled the dispute with its software platform provider at the full and final settlement of £8.9 million and entered into a new 10-year VAR agreement from 1^st January 2020.

3. 20^th January 2020:Nigel Halkes was appointed as Non-Executive Director with immediate effect. Following the upcoming AGM, he will chair the Audit Committee as well.
 

Top Shareholders

 
(Source: Refinitiv, Thomson Reuters)


Financial Highlights - Decent Underlying Performance in FY2019 (ended 31 December 2019)


(Source: Annual Report, Company Website)
 

1. For the financial year ending 31^st December 2019, due to lower revenue from Education services for the period, the revenue decreased by 2 per cent to GBP 78,210 thousand as against GBP 80,062 thousand in FY2018. The group witnessed an increase in the revenue from Student Information Systems by 2.6 per cent to GBP 58.6 million in FY2019.

2. The adjusted EBITDA surged by 9.1 per cent to GBP 15.4 million in FY2019 versus GBP 14.1 million in the financial year 2018.

3. The adjusted operating profit increased by 8 per cent from GBP 10,795 thousand in FY2018 to GBP 11,652 thousand in FY2019. Due to an increase in the administrative expenses, the group reported a reported operating loss of GBP 2,446 thousand in FY2019 versus a reported operating profit of GBP 4,583 thousand in FY2018.

4. The adjusted PBT (profit before tax) increased to GBP 11,549 thousand in FY2019 from GBP 10,787 thousand in the financial year 2018, driven by strong growth of adjusted EBITDA.

5. The adjusted diluted earnings per share stood at 4.4 pence in the financial year 2019 versus adjusted diluted earnings per share of 4.3 pence in FY2018.
 

Financial Ratios - Strong Profitability Margins versus Last Year Profitability

 

The reported Gross Margin and EBITDA margin at 50.1 per cent and 18.3 per cent, respectively, for the financial year 2019 stood higher than the profitability margins of FY2018. On the liquidity front, Tribal Group Plc’s current ratio stood at 0.65x and was lower than the current ratio of FY2018. On leverage front, the assets-equity ratio of theTribal Group Plc’s was 2.77x, which was higher as compared to the assets-equity ratio of 2.13x in FY2018.

Share Price Performance


Daily Chart as on 5^th May 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On May 5, 2020, at the time of writing (before the market close, at 9:58 AM GMT+1), Tribal Group Plc shares were trading at GBX 58.00 and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 76.00/GBX 40.00. Total outstanding market capitalisation stood at around GBP 118.44 million, with an annual dividend yield of 1.9 per cent.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1: Price/Earnings Approach (NTM)



To compare Tribal Group Plc with its peers, Price/Earnings multiple has been used. The peers are Wey Education Plc (NTM Price/Earnings was 37.60), Kambi Group Plc (NTM Price/Earnings was 31.24), Ten Entertainment Group Plc (NTM Price/Earnings was 13.28), Anexo Group Plc (NTM Price/Earnings was 7.17) and AA Plc (NTM Price/Earnings was 1.72). The Average of Price/Earnings (NTM) of the company’s peers was 18.20x (approx.).

Method 2: Enterprise Value to Sales (NTM) Approach
 
 

To compare Tribal Group Plc with its peers, EV/Sales multiple has been used. The peers are AA Plc (NTM EV/Sales was 2.84), Anexo Group Plc (NTM EV/Sales was 2.09), Dignity Plc (NTM EV/Sales was 2.00), Brighton Pier Group Plc (NTM EV/Sales was 1.37) and Sportech Plc (NTM EV/Sales was 0.35). The Average of EV/Sales (NTM) of the company’s peers was 1.73x (approx.).

Valuation Metrics


(Source: London Stock Exchange)
 
As on 31st March 2020, the EV to EBITDA multiple of the Tribal Group Plc was around 7.6, which was lower as compared to the industry. It reflects, shares are undervalued against its peers. 

Tribal Group Plc Vs FTSE AIM 100 Index (6 months)


(Source: Refinitiv, Thomson Reuters)

In the last six months, Tribal Group Plc share price has delivered negative 4.92 per cent return as compared to negative 9.87 per cent returns of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last six months.

Industry Outlook

The Student Information System (SIS) market has witnessed continuous growth in the past few years and continue to grow in future as well due to government initiatives and technological advancement in the education sector. The global SIS market is projected to grow by over USD 5 billion between 2020 to 2024, at the CAGR of 17 per cent (as per the report from Technavio, published in February 2020). Moreover, considering the current disruption of Covid-19, opportunities are likely to surge in the cloud market.

The Tribal Group holds a significant position in the market and had several achievements in 2019 across both the business units. In Student Information Systems, the Group won contracts from Kalpan and HETI (NSW), Australia and University of Northampton, UK. Besides higher education, the Group also added eleven new EBS customers in the UK. Regarding Education Services, the Group won all five major retenders across US, UK and Middle East. Also, the dispute with software platform provider on royalty payments has been resolved. However, the performance can be impacted in the short run due to the Covid-19 disruption since inspection services will be affected as schools and universities are temporarily closed. The Group is about to complete the first phase of its cloud-based software under its Tribal Edge platform, which will bolster the Company’s position in future. 

Growth Prospects and Risk Assessment

The company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the Software & Computer Services Sector. The company, through its wide-ranging scope, had accelerated growth organically and through acquisitions. The new business in the pipeline will help the company to expand its operations and to gain more market share.The market opportunity is expected to remain large and for longer duration as more sectors and industries move towards cloud solutions.The company operates inmultiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations. Being an IT company, TRB needs to invest heavily in innovation and system maintenance and any failure to do so will impact the brand royalty and may affect the company’s financial performance.

Business Outlook Scenario

On an underlying basis, the company has shown decent financial performance in the financial year 2019. Despite lower revenue, the group has shown an increase in the operational and bottom-line performance for the period. The revenue from SIS (Student Information Systems) has also increased in the financial year 2019. During the period, the company achieved strong operational cash conversion of 105 per cent. The group has a strong pipeline and won a new contract with Kaplan Australia and the University of Northampton. The company expect an outbreak of Covid-19 will impact the performance as it results in projects delays and due to the closing ofschools and universities will impact Education Services ability of Tribal. Despite the uncertainty, the group is confident towards its medium and longer-term prospects.

TRB has strong business continuity plans and is focused on delivering projects and support customers. The company has increased investment in Tribal Edge, which will maximise value-added services at lower costs and helps in enabling cross-sell and up-sell strategy of the company for improved cloud-based solutions.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “Speculative Buy” recommendation at the current price of GBX 54.62 (as on 5^th May 2020, before the market close at 10:20 AM GMT+1), with lower-double digit upside potential based on 18.20x Price/Earnings (approx.) on FY20E earnings per share (approx.) and 1.73x NTM EV/Sales (approx.) on FY20E sales (approx.).

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

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