3P Learning Limited

3PL Details

3PL to Merge with Blake: 3P Learning Limited (ASX: 3PL) operates in the education technology sector in APAC, EMEA and Americas region, developing digital learning platforms. As of 14 May 2021, the market capitalisation of 3PL stood at ~$188.30 million. On 12 April 2021, 3PL entered into a non-binding term sheet to acquire 100% of the equity of Blake eLearning Pyt Ltd (“Blake”), subject to due diligence, may add synergies and approach a greater market. The Merged Group's CY20 pro-forma revenue and EBIT may result in over ~$100.5 million and ~$20.8 million, respectively. 3PL and Blake have determined efficiencies across a range of expenses to be estimated around ($7.5 million - $12.5 million annually). Earnings expectations are accretive with a 279% increase on a pro forma CY20 basis.

A Look at the H1FY21 Financials: During H1FY21, the company reported Licence revenue of ~$23.7m in H1FY21, up by 4% relative to H1FY20. The number of issued licences increased to ~4.74 million in H1FY21 from ~4.50 million in H2FY20. The underlying EBITDA stood at ~$4.4 million in H1FY21, up by 26% as compared to H1FY20, attributed to increased operating efficiencies and increased number of Licences issued.

Licences Highlight (Source: Company Reports)

Deferred Ministry of Education (“MOE”) agreement in Middle East: Government-mandated school lockdowns throughout H1FY21 and COVID-19 impact led to deferral of MOE agreement. 3PL and MOE have agreed upon extending the term of the agreement. Collection of the agreement proceeds are expected to occur in H2FY21 and FY22.

Key Risks: 3PL may face liquidity risk due to a net current liability position of $357,000. Recent turmoil due to COVID-19 pandemic may get carry forward to H2FY21, raising uncertainties. Further, a highly competitive market and frequent technological changes in the industry may cause declining revenues and operational efficiencies.

Outlook: 3PL expects improvements in retention and ARR growth from an improved product portfolio and customer experience and the release of a new student engagement platform like Fast Phonics, Readiwriter Spelling and Meritopia. The company will continue to build up their enterprise revenues pipeline focused on Multi-Academy Trusts and Ministries of Educations. Additional US federal finding aid and Expansion of indirect partners in Latin America may materialize in continued sales growth momentum in the Americas.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last one month, the stock went up by ~5.93%. The stock made a 52-weeks’ low and high of $0.720 and $1.440, respectively. On technical analysis front, the stock of 3PL has a support level of ~$1.164 and a resistance level of ~$1.441. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer’s average considering higher investment in its technology portfolio, increase in Licence revenue, decent outlook and Decent liquidity postion. We have taken peers like Think Childcare Ltd (ASX: TNK), Evolve Education Group Ltd (ASX: EVO), to name a few.   Considering the current trading levels, increase in licence fees and EBITDA, non-binding term sheet on merger proposal to Blake, focus on Multi-Academy Trusts and Ministries of Educations, product development initiative, valuation, and associated risks of the COVID-19 situation, we give a ‘Hold’ rating on the stock at the current market price of $1.350 (as provided in the chart).

3PL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Retech Technology Co., Limited

RTE Details

Agreement with Wuxi Vocational Institute of Commerce (WXVIC): Retech Technology Co., Limited (ASX: RTE) operates in Education Technology space and provides comprehensive E-Learning Solution Packages in the way of corporate e-learning solutions, Vocational Education and Language Education. As of 14 May 2021, the Market Capitalisation of RTE stands at ~$67.54 million.   On 7^th April 2021, RTE entered into an agreement with WXVIC to jointly construct a college, namely WXVIC-Retech Digital Media Industry College. Once completed, this would materialize in an almost stable stream of Cash Receipts and hence enhancing growth sustainability.

A Look at the Q1FY21 Financials: During Q1FY21, the company reported ~RMB31.27 million of Cash Receipts, down by 16% year over year, attributed to Spring Festival in February and large project delays. Net operating cash outflow stood at RMB 9.16 million in Q1FY21 as compared to RMB 8.45 million in Q1FY20, as a result of increased operating expenses which were mainly caused by development of new growth engines. During Q1FY21, the company made a loan payment of RMB20.52 million to its related party.

Cash receipts (Source: Company Reports)

Measures to expand customer base: In February 2021, RTE explored a new customer, China Construction Bank University, and provided specialized online activities operating service. In March 2021, RTE won the bid of Mercedes Benz, which was to provide online courses for internal training. RTE and Huawei joined together to deliver virtual classroom platforms for 100 schools (with ~20,000 students) under the Higher Education Council of Pakistan.

Key Risks: RTE generated considerably negative operating cash flows, which may further increase Liquidity Risk for the company. Recent turmoil due to COVID-19 pandemic may get carry forward until end of FY21, raising uncertainties. Further, a highly competitive market and frequent technological changes in the industry may cause declining revenues and operational efficiencies.

Outlook: RTE is involving itself in aggressive customer acquisition activities starting with customer list of the National Association of Financial Market Institutional Investors, contract with Yancheng College of Mechatronic Technology and agreement with Youxuetang. Once materialized, the company foresees incline in revenue growth. The company made a technical breakthrough in Ai English by developing and customizing 4K green screen multi-layer overlay technology, which is significantly ahead of the mainstream wire editing platform in the industry. This may provide RTE a competitive edge over competitors. However, with the current COVID-19 pandemic situation, an inherent uncertainty is expected.

Stock Recommendation: Over the last one month, the stock went up by ~20.83% and over the last three months the stock went up by ~7.41%. The stock made a 52-week low and high of $0.230 and $0.410, respectively. On technical analysis front, the stock of RTE has a support level of ~$0.240 and a resistance level of ~$0.303. Considering the current trading levels, aggressive customer acquisition activities, investing in technology, product development initiative, valuation, high competition, and associated risks of the COVID-19 situation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.290 as on 14 May 2021.

RTE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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