3 EduTech Focused Microcaps

By Mark Tobin | More Articles by Mark Tobin

At a recent technology conference, I attended there was a whole panel discussion on the opportunities around the use of technology and innovation in the education sector. While not as sexy and almost ubiquitous as FinTech or platform businesses like Facebook and Netflix etc. Education globally is still a huge industry. The education in the industry worldwide is estimated to be a near $6t (that’s “t” for trillion) of which EduTech penetration is currently only estimated at low single digit but growing rapidly. 

Within the education sector, you have primary, secondary and tertiary level education which can span both the public and private spheres. There is corporate education space where training and upskilling maybe part of an overall package on offer from some companies or in the cases of skills shortages a necessity for some companies in order to find suitably trained staff. Not to mention all the mandatory OHS training that has come into the workplace in the last 25 years in order to make workplaces safer.

In this article, I profile 3 ASX microcaps which all listed in FY18 and operating in Edutech.

SchroleGroup Limited (SCL: ASX)
SP $0.14
Market Cap $5.5m (undiluted)

So more of a nanocap than a microcap and by far and away the smallest of our three stocks. The company recently announced a JV with ISS a major player in the private school market globally. Through the 50:50 JV Schrole and ISS will market and develop an enhanced recruitment platform for private school teachers for use in their combined customer school base of nearly 400 schools. It will cover some 72k private school teachers globally. The platform is sold on a SAAS model which can be billed monthly or annually.

The newly enhanced platform goes live in the next few weeks which is an upgrade on previous standalone platforms run by each company respectively. It’s akin to taking the best of each platform and making it into one great platform which sharing the costs and the revenues on the upside.

The notable part of the agreement is that the license fees are higher than what Schrole was charging for their previous standalone recruitment platform. So even though it’s a 50:50 revenue split it should see Schrole on a net netbasis increase their revenue through selling into a larger combined school base and at a higher price point.

While this is the main event for Schrole they have a couple of other strings to their bow. Such as Schrole Verify (a background screening product) Schrole Cover (a cloud-based offering for temp/relief teacher recruitment) and Schrole ETAS (education and training service customised to the areas their clients operate)

The company is not yet profitable and burning cash at circa $500k a quarter with $1.7mil in the bank. However, the Schrole/ISS JV should ramp up their revenue and their ancillary products are all in the nascent revenue generating phase.

Its early days but it looks interesting.

Readcloud Limited (RCL: ASX)
SP $0.48
Market Cap $21m (undiluted)

Readcloud provides a multifunctional eBook reader to secondary schools around Australia. The Readcloud eBook reader not only provides curriculum content in digital form but also allows teachers to make commentary in the text, allows teachers and student to share notes, questions, videos and web links in order to improve learning outcomes.

2018 has been a breakthrough year for the company as it signed a couple of marquee agreements with both teaching organisations (exclusive agreement with Queensland principles association representing 210 state schools) and publishers (Jacaranda/John Wiley & Oxford University Press) and distribution channel partners (OfficeMax).

These agreements and the enhanced company profile from their ASX listing has seen their offering move from 50 schools and 21,800 users to over 50,000 users in over 70 schools since listing. Additionally, the company noted that the sales pipeline is looking robust on the back of the work completed earlier in 2018 and the company will be providing an update on sales pipeline conversion at the AGM in Nov 2018.

The company is not yet profitable and has a current cash burn of about $1m per quarter with $4.5m in the bank. However, its revenue growth was 189% in FY18 and reported a small EBITDA loss of $147k after adding back some one-off costs associated with the IPO. The company is focusing on a very specific niche in Australian secondary schools but if it can service this market effectively and dominate the space it will be an interesting proposition.

We await the September Appendix 4c and the AGM update in November to see how they are progressing their strategy.

Janison Education Group (JAN: ASX)
SP $0.44
Market Cap $57m (undiluted)

Janison has two main divisions;

Janison Assessment provides a SaaS platform offering robust and scalable assessment solutions and exams to schools, governments and corporates. They are probably best known for their NAPLAN product of which they delivered 668k tests in FY18.

Janison Learning offers bespoke online learning solutions and content to improve compliance and performance in the workplace. This is provided to both large corporates and government agencies.

The company has a strong base in Australia but is expanding into the Asian market with a stated goal of having 30% of its income coming from international markets by the end of FY19.

Its revenue is roughly 60% recurring with rest coming from project related work from clients surrounding customisation and implementation of bespoke solutions in the Janison Learning division.

The company achieved revenues of $17.3m in FY18 up 21% on the prior year and an EBITDA of $3.1m.  However it still recorded an overall NPAT loss for the year but it is certainly further down the growth and profitability curve than the two aforementioned companies, so its business model is more de-risked.

Janison’s move into Asia and the ability to sell either its assessment or learning offering is key in my view. While Australia still provides ample growth for the foreseeable future the ability to take their offering offshore successfully is the really interesting part of Janison in my view.

Conclusion

With the noise of lasts years, IPO’s coming out of the accounts for all 3 stocks and a longer track record of results in a listed environment to come through over the course of FY19, these EduTech microcap stocks look interesting.

Mark Tobin

About Mark Tobin

Mark Tobin is a Senior Analyst at Independent Investment Research. Mark's focus is on ASX listed microcap and nanocap​ stocks which is​ anything from $10mil to $300mil market cap and everything​ in between. This truly​ is the under-researched​ part of the ASX.

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