Shares in digital learning provider Learning Technologies Group (LSE: LTG) registered double-digit gains early this morning following the publication of its latest set of full-year results and, perhaps more importantly for holders, a reassuring update on current trading.
Is the AIM-listed, growth stock now a solid buy? Here’s my take.
“Ahead of expectations”
They may feel irrelevant at the current time, but numbers go some way to demonstrating just how popular e-learning is becoming.
Revenue jumped 39% to a little over £130m in 2019. Encouragingly, 74% of this was recurring and 80% was generated outside of the UK. Stable sales and geographical diversification feel like great qualities to have these days.
The headline number, however, must be the whopping 316% rise in pre-tax profit to £14.3m. Perhaps unsurprisingly, this was said to be “ahead of expectations“.
While not a stock for income seekers, I think it’s also worth noting the decision to raise the final dividend by 43% to 0.5p per share. If that’s not a sign that business is going well, I don’t know what is. The only snag is that shareholders won’t receive this payout until after the coronavirus storm has passed.
In addition to withholding the dividend, Learning has made big cuts to spending. Salary increases have also been paused, bonuses postponed, some directors have deferred their entire salaries and recruitment has been frozen. All told, the company has estimated that these actions will save over £20m. Despite boasting net cash of £3.8m at the end of last year, this all seems very prudent to me.
Worth buying?
The share price of Learning Technologies has staged a minor recovery since markets collapsed last month. Nevertheless, it’s still far below February’s peak of 172p. Does this make the stock a buy? Possibly.
One big positive is the company’s belief that the coronavirus has not had “a material impact” on its performance and that recurring revenues will be “largely unaffected“. The only slight negative is that new business wins might be pushed back as customers take steps to conserve their finances. Compared to the troubles experienced by some listed companies, this is hardly disastrous news.
As a sign of just how useful the company’s services can be, it’s worth noting that Learning has been working with a long-term client to produce healthcare courses for all the former doctors and clinicians returning to the NHS. Considering this, I really can’t see demand going anywhere but up once things get back to normal.
On the flip side, the valuation still looks pretty full. Based on current estimates (which must be taken with a pinch of salt), its stock was priced at 24 times earnings before markets opened. That’s expensive during the good times, let alone the bad. And although no one has a crystal ball, I suspect those ‘bad times’ will continue for a while yet.
In sum, I’m certainly optimistic on the Brighton-based firm’s ability to continue increasing revenue and profits over the medium term. Would I want to buy much at the current price, ahead of what some economists are forecasting to be the worst crisis since the Great Depression of the 1930s? Probably not.
If I were to get involved, buying in instalments over the next few months feels like the best way of mitigating risk.
