Learning Technologies Group PLC (LON:LTG) is one of the few pure digital learning businesses on the stock market.
Quoted since November 2013, the company’s policy is to use its listed status to consolidate the sector.
A recent addition to the family was Rustici Software, a global market leader in digital learning interoperability.
LTG bought it from its founders at the end of January 2016 for an initial US$26mln and it has not looked back since.
Impressive year in 2016
Jonathan Satchell, LTG’s chief executive, describes Rustici as “the expert plumber of our industry” and it clearly had things humming nicely by the end of 2016.
Margins over the year came in higher than expected and LTG said profits would beat market forecasts.
The e-learning specialist it was Rustici driving the improvement, adding it was performing ‘significantly’ ahead of expectations.
Learning Tech is now also seeing first revenues from a huge Civil Service training contract picked up last year.
Andrew Brode, chairman, described progress as excellent and added that Rustici’s contribution combined with the Civil Service contract would mean “a transformational impact on profits in 2017 and beyond.''
“EBITDA margins are now firmly in the mid twenties, underpinned by strong recurring revenues and expansion of sales outside our core UK market, and we have entered the new financial year with significant momentum.”
Recurring revenues rose to around 27% of the total in 2016 with a third of income also now coming from overseas.
Consolidation pays off
At the same time as buying Rustici, LTG took a 27.3% equity stake in Watershed Systems, an e-learning analytics group that specialises in measuring the effectiveness of learning programmes.
Watershed is still in the development stages, so a minority stake in the company protects Learning Technologies from financing requirements while still giving the company a seat at the table.
“We are proud that all our businesses are profitable and cash generative,” Satchell said, explaining why the company had not acquired a majority stake in Watershed.
It also helps explain why dividends have been soaring along with sales.
The interim dividend in 2016 rose by 40% to 0.07p to follow a 50% increase last year.
Acquisitions add strings to its bow
Rustici and Watershed are no doubt effective in their own right but the greater value to LTG is the ability to offer a blended service, which is resulting in increased take-up of its services.
A stunning example of this was the landmark deal with existing customer Civil Service Learning.
In partnership with its strategic partner, accountancy firm KPMG, and others, it will develop a new training platform for 400,000 civil servants.
The platform incorporates a combination of digital, informal and classroom components, across 15 curriculum areas, from leadership & management, diversity, EU practices, through to project management and digital delivery. .
It was the most significant contact the group had even won.
Blended learning still appropriate
The blended learning approach being deployed with the Civil Service is proving especially relevant in today's workplace, believes Satchell.
"All types of learning are relevant, but the problem with the traditional method of parking people in a room and presenting to them is what we call 'knowledge decay'.
“We see a very steep drop-off in the retention of what was learnt in the training room if it is not followed up with e-learning sessions.
“In fact, you want to start with the e-learning before the live presentation, so you can determine training needs and prime people on what they are going to learn," Satchell said.
"I think there is a big disruption coming to the learning industry that will mirror the sort of disruption seen in marketing 10 or so years ago.
"Marketing analytics enabled companies and marketing professionals to determine the effectiveness of their efforts and I see the same thing happening in the learning process," Satchell revealed.
House broker Numis tweaked its estimates upwards following the latest update with 3% added to its 2016 forecast to £6.4mln and 8% to 2017’s number at £8.3mln.
Numis added that critically LTG has delivered the content for Civil Service Learning contract on time and on budget.
The broker raised its price target to 46p (42p) though this was in danger of quickly being met as the shares jumped 16% to 43.4p following the trading news.
-- includes January 2017 update--