Treasure Chest | Jul 13 2022
This story features JANISON EDUCATION GROUP LIMITED. For more info SHARE ANALYSIS: JAN
FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Shaw and Partners anticipates a positive share price re-rate for Janison Education.
By Mark Woodruff
Whose Idea Is It?
Analysts at Shaw and Partners
A unique opportunity for investors to take advantage of a longer-term potential re-rate of the Janison Education ((JAN)) share price.
Shaw and Partners believes positive drivers for Janison Education from covid will soon become more apparent, while a recent material reset of the cost base has led to a nimbler business.
The pandemic has presented both challenges and opportunities for the provider of digital assessment platforms, assessment products and exam tests services. While the adoption rate and size of the addressable market has increased, ongoing covid disruptions and resulting resource constraints at schools have weighed, explains the broker.
The company’s Assessment Platform is the global benchmark for high-volume, high-stakes exams, and its Educational Assessment products are flagships in the market, according to Shaw. Primary clients include schools, education departments, higher education organisations and accreditation bodies across Australia, New Zealand, Europe, the US and Asia.
The positive drivers from covid, explain the analysts, include a greater acceptance of digital testing and an improved school capability, with a lower barrier to adoption. Given students fell behind during remote learning during the pandemic, more focus is now anticipated on testing and interventions.
Shaw initiates coverage with a Buy rating and 12-month price target of $0.80, which implies around 85% upside to the current share price, which has taken a tumble from an all-time high of $1.45 in November last year.
Prior to a recent trading update, Janison Education had guided to over 45% revenue growth versus the previous corresponding period in the second half of the financial year.
Unfortunately, new guidance was for revenue growth in excess of 20%, after delays to contract signings due to the ongoing impacts of covid, which resulted in the deferral of $3-4m of high-margin revenue out to FY23/24. As a result, Buy-rated Bell Potter lowered its price target to $0.70 from $0.90.
Bell Potter continued to see numerous positives, including a reset of the cost base and operating structure via the integration of acquisitions and consolidation of the company's legacy assessment platforms.
Additionally, the company still expects to be cash break-even in FY23, which Shaw believes adds further weight to the cost base reset and its sustainability through FY23. As the company’s operating results and cashflow are seasonally skewed to the first half, a positive catalyst is expected when investors see improvement at first half results in February 2023.
Back in late March, Overweight-rated Wilsons (target $1.41) was attracted to Janison’s material operating leverage as the business continued to shift towards higher-margin platform revenues.
According to the broker, hybrid schooling conditions had accelerated the company’s move into the consumer market with the launch of Direct-To-Parent. This new opportunity was thought to “open up the floodgates” for increased subscription revenues and diversification of end-customers (parents and schools).
In March this year, Taylor Collison highlighted the acquisition of Academic Assessment Services, which was expected to form a crucial piece of the Direct-to-Parent offering. The acquisition also fitted with the company's overall strategy of acquiring analogue test providers and converting to a digital format. The broker retained its Speculative Buy rating and set a $1.18 target price.
Considering the share price traded at a similar price level during the GFC bear market back in 2008/09, it's probably fair to say Janison has taken its time before properly landing on investors' radar during the 2020 pandemic when the share price surged above $1.40, only to subsequently revert back to where it traded in late 2019.
One major difference is Janison has more products, more customers and more revenues this time around, though the company is not yet profitable. That milestone might be reached in FY24.
If Shaw's projections are anything to go by, revenues are set to accelerate in the two years ahead, and the bottom line might do better than simply breaking even by then.
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