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Learning Technologies Group: a class act

Last updated: 21:56 23 Feb 2015 AEDT, First published: 22:56 23 Feb 2015 AEDT

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Occupational training is adapting to the world of the Internet as courses are offered on the computer, tablet and smart-phone.

It is a clean, easy, effective, and critically, cost effective way for large companies to school their staff.

Technological change has created an industry that, while still at the formative stage of development, is growing strongly.

The six hundred pound gorillas in education, companies such as Pearson (LON:PSN) and the German firm Bertelsmann, are late to this particular party.

But industry analysts are absolutely certain they won’t remain on the sidelines.

Building their own businesses is an option, but not the easiest or quickest path to supremacy.

So, they are likely to buy in the expertise.

This reasoning may have prompted property entrepreneur and investor Nigel Wray to take a 3% stake in Learning Technologies Group (LON:LTG), the only pure play digital learning business listed on the stock market.

Wray’s motivations are not something that chief executive Jonathan Satchell will speculate on, although he is happy to have received the backing of the Saracens rugby club owner.

Satchell is, however, an eloquent spokesman for a business that has embarked on a buy-and-build strategy aimed at carving out the premier position in this growing niche.

In May last year it acquired Preloaded, a company that brings the games experience to digital learning, a process that brings “interactivity and engagement” to some very dry topics, Satchell says.

It was one of two deals completed last year. The other, last April, saw LTG take control of LINE Communications, a competitor to the firm’s core business, but one that had close ties with the consultants bidding for big jobs.

Both are bedding in very well, with Preloaded having diversified a fairly heavily skewed customer base very quickly under new ownership.

LTG’s strength is that it can deliver training across all the digital platforms and is subject agnostic, Satchell says.

“We are learning experts. One day we might be doing palliative and end of life care for an NHS trust and then we might be providing search and rescue training for a Westland helicopter pilot. It really is that diverse,” he explains.

As client bases go, LTG’s is blue-chip. British Airways and Lloyds (LON:LLOY) are long-term customers, while easyJet (LON:EZJ), Dunhill and Burberry (LON:BRBY) also use its services.

The firm is also the Civil Service’s main training partner, which means being responsible for the e-learning needs of a workforce of 420,000.

“What we do is expensive; we need to amortise that cost over a large audience, so we work for some very big companies,” says Satchell.

The plan is to continue to buy and build, with the firm targeting so called ‘must-have areas’ such as compliance, and health and safety.

“The reason we went public is so we could use this opportunity to consolidate the industry and we are very focused on that,” the LTG chief executive explains.

LTG had, at the time of the last update, £4.4mln in the bank; it also has equity which it can use as acquisition currency and it may raise a little debt – but only a little.

Satchell reckons there is plenty still to play for here in the UK, with the market barely tapped, so international growth is unlikely to feature highly in the business plan for the next year or so.

The exception to this self-imposed moratorium is North America, where the New York operation is performing very strongly – so much so the opportunity can’t really be ignored.

The broker Numis is predicting pre-tax profits will be £1.6mln for the year just gone, rising to £3.1mln in 2015 and then £4mln on sales of £21mln. The plan is to be generating £50mln of revenues by 2017.

“The e-learning market is benefiting from structural tailwinds as training migrates from face-to-face to online, which we believe LTG is well placed to exploit,” says analyst Gareth Hunt.

It is also worth noting LTG is dividend paying, albeit the yield is modest.

Still it marks the company out as having a financial discipline that many of its peers on AIM don’t possess.

“We have a progressive dividend policy. But we aren’t going to get into the thin dividend cover and we know we can use the cash very effectively to grow the business.”

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