Full report\u00a0access<\/a><\/p>\nThrough a buy and build strategy, Learning Technologies Group (LTG) has established a distinctive international position in corporate e-learning with a broad range of software and service offerings. LTG has been growing apace and profit margins have been rising strongly. The recent acquisition of LMS provider NetDimensions is the last major piece in the technological jigsaw. Attractive growth drivers and synergies from the NetDimensions acquisition put the company in a strong position to generate positive surprises. Given these factors, the c\u00a023x our FY18 EPS is not demanding and our DCF analysis indicates upside potential of 43% to 103%.<\/p>\n\n\n\n
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Investment case: e-learning consolidator<\/span><\/h4>\n<\/div>\nLTG is consolidating the corporate learning technologies space, having made six acquisitions since it joined AIM in 2013. The corporate e-learning industry is growing at rates in the mid-teens supported by a structural shift to online\/blended learning. LTG has benefited from its increased scale and profit margins have been rising. The recent investment in software platforms is boosting earnings quality and margins should continue to move higher. Following the NetDimensions deal, more than 40% of revenues are recurring in nature, up from 10% in FY14.<\/span><\/p>\n\n
H1 trading update: Strong growth, record order book<\/span><\/h4>\n<\/div>\nManagement reported strong organic growth in H1 along with a record order book. Notably, LEO achieved 50% growth in sales over H116. The 100-day plan to reduce operating costs and integrate NetDimensions into the group has been successfully completed on time and the transformation program will continue into H217.<\/span><\/p>\n\n
Forecasts: Robust growth and margin profile<\/span><\/h4>\n<\/div>\nOur near-term forecasts are complicated by acquisition activity, particularly the acquisition, restructuring and integration of NetDimensions, where the company is adopting consistent revenue recognition policies, is reducing NetDimensions\u2019 costs to $16m and focusing on bedding down the integration (hence revenue contribution of $24m in FY18e vs $25.6m in FY15). Once complete we conservatively expect to see a group growing at a robust, high single-digit organic rate generating mid-20s operating margins and healthy levels of cash. With strong execution and if market conditions remain buoyant, mid-teens growth and c\u00a030% margins may be possible. <\/span><\/p>\n\n
Valuation: DCF analysis suggests 56-77p range<\/span><\/h4>\n<\/div>\nGiven these qualities we do not believe that the current PE rating of c\u00a023x in FY18 and\u00a021x in FY19 is at all demanding. Our DCF model suggests a value of 68-97p if management can generate organic growth rates in the mid teens and drive operating margins to 30% from 24.6% in FY16.<\/span> Further acquisitions could also increase the company\u2019s scale and enhance earnings.<\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/section>\n\n\n\n
Investment summary: Rare opportunity in e-learning technologies<\/span><\/h2>\n<\/div>\n\n
Company description: Learning technologies consolidator<\/span><\/h4>\n<\/div>\nLTG was established to consolidate the learning technologies space. Traditionally, LTG was a services business, building e-learning content solutions for enterprises, both in the private and public sectors. Through acquisition, LTG has added a specialist in the financial services sector \u2013 Eukleia \u2013 and a gamification specialist \u2013 Preloaded \u2013 to its services portfolio. LTG has also added a software business called Rustici that provides Application Programming Interface conformance software \u2013 essentially digital plumbing for the e-learning industry and it has developed its own authoring tool, gomo, which is very helpful for establishing customer relationships. The most recent acquisition, NetDimensions, brings a respected learning management system (LMS) with a strong customer base to the portfolio. <\/span><\/p>\n<\/section>\n