Ed-tech stock: What the report card looks like for Janison Education
In the past two years school students have experienced learning in a way that was inconceivable to their parent's generation. Whilst many months of home learning has been very challenging, it would have been infinitely more difficult without modern-day technology.
Schools and other educators have been forced to invest heavily in technological solutions and a handful of companies have been well-positioned to capitalise on this.
One such company is ASX-listed Janison Education (ASX:JAN). Janison is focused on building platforms for online assessment and e-learning solutions. Dubbed an edtech business, it was founded in 1998, and listed on the ASX in late 2017 with a market capitalisation of about $60 million which has since grown to about $220 million. Founder Wayne Houlden has retained more than 29% of the shares.
Spending on edtech is expected to grow rapidly over the next few years as schools, universities and colleges are in the early stages of adopting digital technology. This growth received an injection last year with the market for edtech estimated to have expanded by $85 billion as the world embraced online learning during the pandemic.
The area where Janison has seen the strongest growth is in their assessment platforms and products. These are tools that enable clients to conduct online assessments and are used by universities and colleges, professional bodies and schools. One notable contract which has recently been expanded is with the NSW Department of Education who have developed a Check In tool which is a multiple-choice test to measure how students are coping with the disruptions to school and enable teachers to then provided targeted assistance.
Janison has also recently acquired the global rights to two exams that are administered by schools to provide standardised testing across school-aged students. Most recent is PISA for Schools which is owned by the OECD and is a test that provides school level benchmarking. Janison provides the platform to power the test in 15 countries and are accredited as the service provider for schools in Australia and the UK. The other is ICAS which is also an international suite of exams to inform schools and challenge students.
It is aiming to drive revenue from the current $30 million to $80 - $100 million by FY25 and see these two exams as the biggest contributors. It also expects the assessment platform to double its revenue from $10 million to $20 million and envisage some bolt-on acquisitions.
Targets are one thing, but it is the actual execution that matters. The industry dynamics will provide a tailwind. Add to that their track record of 20%p.a. growth over the past three years, their notable client base and 100% retention of assessment platform clients to date, and it is in a good position.
It is yet to turn a profit as a listed company. At an earnings before interest, tax, depreciation and amortisation level, it is earning a margin of about 10%. Their gross margins are 55% and their annualised recurring revenue (ARR) is currently $23 million. ARR grew by 75% in 2021. It is these dynamics that should enable the bottom line to turn profitable and scale up quickly as the top-line revenue grows.
Some people will draw comparisons with IDP Education (ASX:IEL). IDP's share price has increased nearly 7 times in the past five years. Whilst the two companies share some similarities, ultimately it is very different businesses. IDP is not a direct competitor of JAN and is actually a customer. The main similarity is that both firms have the rights to exercise an internationally standardised exam on a global basis. IEL distributes the English language exam IELTS, which is used by people looking to prove their proficiency at English primarily to gain entrance to tertiary education.
It would be a bold statement to say that Janison will follow the path of IDP as they are very different businesses. That said Janison has put in place solid foundations which may enable it to experience rapid growth over the coming years. It seems to be in the right place at the right time and the market has embraced the narrative.
The share price has doubled over the past year. On the face of it, the shares appear expensive at a price to sales ratio above seven, but it will all depend on their ability to execute the growth strategy over the next few years. If it attains the targets it is aiming for, the valuation starts to look more reasonable, but it will need to put in an A+ performance.
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