What can we learn from the stock prices of corporate training groups?


Forget those toe curl training videos where the actors set up hazards on the stairs. Staff training has evolved alongside the digital economy.

The pandemic, online teaching and working from home have only accelerated the transition to virtual classrooms and online courses designed to engage employees and help them cope with changing fashions. of work.

Whether it’s upskilling, reskilling, career development, lifelong learning or, more clinically, ‘optimizing human capital’, employees and employers want more. And they want it to be delivered flexibly, online and without disrupting the workday too much.

This means that corporate training is becoming more important than ever. Consider Euan Blair, descendant of Tony, former British Prime Minister, whose business Multiverse was valued at $1.7 billion last month. Multiverse assesses, coaches and places apprentices and runs on-the-job training programs for employees of all ages entering digital, technology and data jobs.

“We’re still on one path or another,” a top international banker told me wearily. But the costs can be high if “we don’t persevere. Look at the $100 million fine imposed on EY last month.”

In June, EY, the accountant, agreed to a $100 million settlement with the US securities regulator following allegations that staff cheated on exams. EY agreed, among other things, to impose training to “reinforce” the commitments of “compliance, ethics and integrity”.

Nobody really knows the size of the corporate training market, but “one thing is certain, it is very large”, says the bank BMO. He estimates that the market in the United States alone is worth around $90 billion and continues to grow.

Amazon, for example, recently announced plans to invest more than $1.2 billion to upgrade the skills of 300,000 of its employees worldwide by 2025.

Yet despite all of this, there are surprisingly few listed companies focusing on digital education in the workplace. The market is very fragmented and dominated by private companies.

To be sure, a slew of edtech groups have floated around the United States over the past year, including online platform providers Udemy and Coursera. But they’ve since had mixed results, and the shares fell sharply as the tech sold off. Coursera’s loss-making market value has fallen from $6 billion at float to nearly $2 billion.

In the UK, investment opportunities are even more limited. But there is one particularly interesting company – part software, part content provider Learning Technologies Group, which floated into the alternative investment market in 2013. Its founders, chairman Andrew Brode and chief executive Jonathan Satchell , spotted a growing demand for more regulation and compliance. after the financial crash.

I was lucky enough to catch up with Satchell, nearly a decade after our first conversation.

The plan then was to create a high-margin, cash-generating buy-and-build vehicle with plenty of recurring revenue focused on digital workplace learning. “We’re 10 times bigger now,” Satchell says happily. Since 2013, LTG has brought in investors six times and bought more than 15 companies and the group now offers everything from learning management systems and leadership courses to staff assessment tools. It operates in 34 countries, employs around 40,000 people and pretty much covers the corporate learning waterfront, according to BMO, which ranks it among the top 20 training companies in the world in most market segments.

Its income has risen steadily, from around £8m in 2014 to nearly £147m in 2021. Earnings before interest – operating profit – have risen from £1.5m to £54million.

However, the group remains a stock market minnow. It looks like the market is struggling to value LTG and its shares are down a third in a year. “Nothing really looks like LTG,” says a stockbroker. “Certainly not in the UK”.

It’s not quite a tech and not quite a services company and its shares aren’t quite worth £1billion, trading at around 14 times expected earnings. Its enterprise value (equity and debt) is approximately 10 times earnings before interest, taxes, depreciation and amortization.

Perhaps the closest UK comparator to LTG is the similarly sized Kainos, a partner in Workday, the US-listed workforce management and software group. Kainos helps government departments and companies manage their human resource systems. Even after its shares have fallen 23% over the past year, HR Group is trading at more than 20 times expected earnings for next year.

Goldman Sachs analysts group LTG into a subset of the media sector where it sits alongside Pearson, the education group valued around £6bn, and Kahoot, the edtech online learning quizmaster of ‘Oslo, whose backers include SoftBank.

Acquirer Kahoot is barely profitable and its EV is closer to 40x expected Ebitda, even after a steep 12-month stock decline. So it still looks expensive.

Pearson has reduced its focus on higher education, e-textbooks, qualifications and what its new management team calls “lifelong learning”. Despite a disappointing revenue and profit record, and its operating margins being about half of LTG’s, Pearson shares are trading at about 17 times expected earnings this year. Earlier this year, Goldmans dubbed Pearson a story of “idiosyncratic turnaround.” Not exactly a ringing endorsement from the FT’s former owner.

Not that LTG is risk free. Satchell himself admits that “we are at an interesting moment” and that the market is worried “we are at a decisive moment”.

Last year, LTG made its biggest and most ambitious acquisition, picking up US-listed GP Strategies for nearly $400 million, part debt, part equity. GPS more than doubles LTG’s revenue to nearly £600m and attracts big-name customers such as Microsoft and General Motors, but GPS’s operating margins were a quarter of LTG’s 20%+. And the deal diverts LTG’s revenue to content, consulting and services. After the acquisition, less than a third of LTG’s revenue will come from its higher-margin software side.

Satchell seems confident he can more than double GPS’s profitability by the end of the year and quickly pay down debt. Broker Numis says the integration is going well. Unfortunately, in April, the group stumbled on the recognition of income and made a restatement of the balance sheet of around £6million. As one broker put it, “The problem wasn’t big, but the timing wasn’t helpful.” This fueled uncertainty. It’s not just that the recession will impact corporate training budgets or that GPS is a big mouthful for a tic like LTG, but there won’t be any offers for a while.

There is always a time when investors in roll-up vehicles start to worry that earnings growth will falter once acquisitions stop. Tellingly, Goldman Sachs, brokers, this month cut its expectations for organic earnings growth by a fraction to 4%.

That said, as the bank points out, LTG’s rating is at historic lows and at a huge discount to its peers. It seems overkill. The demand for in-company training will remain strong. And just because a school is small doesn’t mean it can’t provide a good education.

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