Learning Technologies (LTG): organic revenue growth?

A quick look at Learning Technologies (LTG). This software business has grown by acquisition during recent years. Revenue was £14.9m during 2014 and was £130.1m by 2019:

LTG sharepad revenue !

With such ‘buy and build’ strategies, shareholders ought to consider whether revenue is growing organically (good) or whether more recent acquisitions are hiding sales shortfalls from older deals (bad).

Annual reports ought to disclose the financial effect of acquisitions.

The relevant note from the 2019 annual report is shown below.

We discover the revenue contribution from the acquisition and what the revenue contribution would have been had the purchase been made on the first day of the financial year.

The relevant notes from the 2014 to 2018 annual reports are shown below:

2014:

LTG AR 2014 acquisitions2

2015:

2016:

2017:

2018:

A summary:

2019: Breezy: contributed £3.5m, would have been £1.0m higher at £4.5m
2018: PeopleFluent: contributed £41.8m, would have been £33.1m higher at £74.9m
2017: NetDimensions: contributed £12.9m, would have been £4.5m higher at £17.4m
2016: Rustici: contributed £6.3m, would have been £0.5m at £6.8m
2015: Eukleia: contributed £2.5m, would have been £3.7m higher at £6.2m
2014: LINE: contributed £5.1m, would have been £2.3m higher at £7.4m
2014: Preloaded: contributed £1.5m, would have been £0.6m higher at £2.1m

At the time of purchase, those seven acquisitions had revenue of £4.5m + £74.9m + £17.4m + £6.8m + £6.2m + £7.4m + £2.1m = £119.3m.

Back in 2014, revenue was £14.9m, of which £6.6m was contributed by the purchases of LINE and Preloaded. ‘Base’ 2014 revenue was therefore £8.3m.

So… revenue today ought to be at least ’base’ 2014 revenue of £8.3m plus acquired revenue of £119.3m = £127.6m.

The actual figure was £130.1m, which if you add on the ‘would have been’ effect of the last acquisition (Breezy) comes to £131.2m.

I must admit these sums do not suggest LTG has delivered notable organic revenue growth. Mind you, most of the acquired sales were purchased during 2018 so may not have had time to deliver. Currency effects may have been an issue, too. At least LTG’s revenue is not less than my £127.6m calculation.

LTG said organic growth for 2019 was 5%:

LTG acquired Open LMS for $32m earlier this year, so the sums will have to be revised when the 2020 annual report is published.

Maynard

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Indeed. LTG’s organic growth figures are relatively benign (edit: poor). And if you back out 2017, seems like it’s actually been negative. The 2019 figure excludes civil services contract and PeipleFluent so it’s a really distorted figure.

The other issue is that PeipleFluent, which was a sizeable acquisition, seems to have been a shrinking business as well.

The company claims that they will turn PF around. Time will tell.

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LTG, an Edtech business. Interesting company where Andrew Brode, now getting on a bit but having already created a lot of value at RWS, is chairman with c15% of the company as largest investor and the CEO, Jonathan Haskell has another 9%. If company forecasts are to be believed (see 4traders) it’s on the lowest rating for a long time a year or two out though this includes a very recent and materially large US acquisition. So we have two insiders with a lot of skin in the game, one of whom has an impressive track record. I don’t much about the CEO. Looks potentially interesting though hinges heavily on the big acquisition and ask those integration cost savings and cross selling opportunities… anyone here dug into this one or have a current position? Cheers and happy new year everyone.

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Hi Steve,

I think Mr Brode is the main attraction. Conversations I have had with other investors about this stock always start with them mentioning him.

A very acquisitive business, with a recent deal that will make the earlier financials rather academic :point_down:

LTG bought GP Strategies for £284m, which was a lot of money when adjusted EBIT was running at £44m a year.

Rationale is prospect of improved margins:

GP Strategies target EBIT margin of low double digits by FY2022 on a run rate basis, with further margin improvement potential

LTG says GP Strategies was expecting sales of $499m and adjusted EBIT of $26m for 2021, which if a target margin of, say, 12% is achieved on unchanged sales, would give adjusted EBIT of $60m or £44m.

This latest purchase should therefore double the profitability of the group.

LTG took on debt and issued shares to fund the deal, which is not exactly the Halma way of doing things:

Mr Barber believed that to create value for the shareholder, any company purchases should be;

  • paid for by internally generated cash.

It’s not a stock for me, but I would welcome other views. From an earlier look I was not convinced LTG was generating much organic growth:

Today’s LTIP news is interesting :point_down:

15.5 million management options will come good if EPS and/or total shareholder return deliver CAGRs of 10%-plus over the next 4-5 years, with a maximum payout at 25%pa. Presumably that shows what the directors believe is possible.

I guess this stock boils down to whether your trust the board to deliver or not, as deciphering the group’s financial performance is difficult given all the deals. Share price now is 177p.

Maynard

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Hi Snazzytime - thanks for this update.

I see LTG in your list of holdings - have you held it long? What’s your current take on it?
Best,
steve

hi Steve

Firstly congratulations on your 2021 portfolio returns which I just read on another thread.

I have held LTG for over 3 years. I bought in at 129p with a subsequent 25% top up last year at 152p.

What initially attracted me to the company was the management team. I had been looking at RWS for a while where Andrew Brode has had tremendous success and has a 23% stake worth £585m.

I didn’t buy RWS but that led me to look at LTG where Andrew Brode has a 14% stake worth £200m and the CEO Jonathan Satchell has a stake of 9% worth £130m. Together they have driven LTG since 2007 when they joined forces (JS was already CEO and AB came in as investor). The company was subsequently listed in 2013.

LTG has had a successful growth by acquisition model and have demonstrated their acquisition skills (so far). This type of investment is high risk / high reward with lots of moving parts and accounting adjustments making it difficult to value. Personally I am prepared to back what I view as a strong management team, with proven track record and infully aligned with shareholders. Whilst AB is 81 and is in his later years of life, JS is only 54 so he is likely to be around and driving LTG for some time to come.

Things have recently changed with a ‘transformative’ acquisition of GP Strategies for £284m funded by £82m placing and remainder in debt. This changes the company’s historic operation of small / no debt to an end of year projected leverage of 1.7. Hence the both the risk and reward here has increased.

I am happy to hold to see how this plays out and place my trust in management but am well aware that many ‘transformative’ acquisitions have ended in tears so any early signs of difficulty with this acquisition would likely trigger an exit for me.

Best

Snazzy

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Thanks Snazzy. Do you know much about Satchell? He seems to have grown the company’s fcf per share most impressively over the years, and the company is now generating about £50m ocf (adjusting for wc movements) off £150m of sales, suggesting 30%+ margins. Dividends grown at 40% pa and eps forecasts have jumped for 2022 whilst the share price has fallen back so overall I’m encouraged - perhaps worth starting a position at these levels and then waiting to see how the numbers develop in 2022.

Maynard - thanks for shifting my question to the original trail.

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hi Steve

Learning Technologies’ history goes back to 1986 when known as Epic, one of the early companies involved in interactive computer based training. In 2007 Jonathan Satchell (a former owner of another e learning group) was brought in to lead the company. Within the next year he teamed up with investor Andrew Brode to acquire Epic which subsequently changed its name to Learning Technologies and floated on AIM in 2013.

You may also be interested in a fairly recent (August 2021) Forbes background article on Andrew Brode which I googled here.

Hope that helps.

Best

Snazzy

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