Some firms don’t like to be dubbed ‘buy-and-build’ but Learning Technologies (LTG:AIM) chief executive officer (CEO) Jonathan Satchell says his firm is ‘unashamedly so’. The digital training company's February 2017 acquisition of e-learning software firm NetDimensions is the latest in a long line of acquisitions. At £53.6m it’s also the biggest to date.
NetDimensions caught the eye of Shares a long while ago, noting its concentration on the Learning Management Solutions (LMS) niche.
The numbers
Now part of the Learning Technologies stable, results from the enlarged company for the year to 31 December 2016 came in in-line with analyst expectations. The figures show revenues 42% higher at £28.3m with an even bigger 68% jump in pre-tax profit of £6.4m.
The market seems pleased enough, pushing the stock around 3.5% higher to 45.5p, valuing the business at £248m. Analysts at broker Numis see no reason to change their optimistic view on the stock, sticking with a ‘buy’ recommendation. A 40% hike in the dividend to 0.21p per share helps, although the forecast 0.25p payout this year implies a meagre 0.55% yield, not uncommon for growth stocks.
That puts the stock on a fairly hefty price to earnings (PE) ratio of 30.3-times Numis' 2017 earnings per share estimate of 1.5p. So a lot of growth hope is already factored in at this level. That said, Learning Technologies does appear to be on a steep growth curve, backed by a strong pipeline of future work.
The order book includes what CEO Satchell calls a ‘lucrative contract’ with the Civil Service, although no financial details were given.
New revenues
Analysts predict that NetDimensions will add around $20m to the top line when fully integrated next year so there’s potential for growth. According to Satchell, NetDimensions has done ‘the hard work’ in developing its software but despite revenues of $25m last year, the company needs restructuring to improve profitability. The acquired company ran up a pre-tax loss of £ 1.28m, according to London Stock Exchange data, in 2015.
Satchell says the deal is ‘transformative’ as it gives his firm a proprietary platform, allowing Learning Technologies to offer a greater breadth of services in this highly competitive sector. He admits his firm was heavily biased towards professional services project revenue but now has recurring software revenues to balance things.
The benefits of NetDimensions proprietary platform is that some corporates will not use open source software for security reasons. Ironically, the largest client using Learning Technologies open source platform is the UK government.
The Hong Kong-based firm already has some large corporate clients, including airline Cathay Pacific, so once the restructuring is done the firm should start generating profits.
Integration means Learning Technologies plans to take a break from the M&A trail for at least six months, according to Satchell.
