iCollege Limited

This report is an updated version of the report published on the 29^th April 2022 at 3:55 PM GMT.

Company Overview: iCollege Limited (ASX: ICT) got listed on ASX on 24^th August 2009. ICT is a vocational training provider in Australia. The company consists of six businesses and offers accredited and non-accredited vocational education and training solutions across Australia. It operates through four registered training organizations (RTOs) and a specialist information technology (IT) training business, which offers boot camp style training in coding and an English language testing business partnered with Cambridge Assessment English. Catering to both domestic and international students, the company provides training to existing workers, school leavers and job seekers and covers seven campuses: Brisbane, Gold Coast, Perth, Adelaide, Cairns and Canberra.

ICT Details

Records in 3QFY22:

• Increasing Top-line: ICT’s revenue surged ~175% on pcp basis and has set a new record by marking a figure of $12.5 million. Furthermore, the deferred revenue has increased by ~$9.5 million in 3QFY22 since the ease of borders.
• Cash Position: With the ~508% up in cash receipts over pcp basis to $21.09 million, the cash flow appeared to end on a positive note (excluding M&A costs), predominantly owing to a strong increase in international students returning to Australia. It closed its quarterly accounts ending 31^st March 2022 with ~$22.26 million of cash balance.

Other Business Updates:

• RedHill Integration: The acquisition of RedHill has been completed, and now ICT has shifted its focus from integration activities to bringing the synergies in the real world, which was reflected by the revenue contribution of $9.5 million and cash contribution of $21.3 million in 1HFY22.

Revenue from Customers Highlights for 1HFY22 (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 30.69% of the total shareholding, while the top 4 constitute the maximum holding. Perpetual Investment Management Limited and Pendal Group Limited are holding a maximum stake in the company at ~6.16% and ~5.52%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company’s gross margin has shown an uptick from 50.5% to 61.8% and has reduced its debt-to-equity ratio from 2.49x to 0.34x in 1HFY22.

Liquidity Profile & Debt Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

1. COVID-19 and Omicron Variant Risks: Due to COVID-19 and the new variant, the company might get affected by the lockdown regulations and restrictions, which might affect its sales and operations.
2. Currency Price Risks: Since the company’s revenue is dependent on the international payments and considering the market volatility it is vulnerable to the risks associated.
3. Acquisition Risks: The company is susceptible to the risks associated with the M&A activities happening and synergies arising from it.

Outlook: With a slight relaxation in the international lockdowns, the demand from international students returning to Australia has been strong, which has thereby resulted into growth in deferred revenues as tuition fees. The international students who are commencing studies in 4QFY22, have paid their fees in advance. The company has plans for accelerating its organic growth through launching its Greenwich brand into Queensland market in July 2022. For 1QFY23, ICT expects English language students’ numbers to increase to ~2,000,000 at Greenwich. On the other hand, with the completion of RedHill acquisition, ICT is expecting to bring annualised cost synergies of $1 million -$1.35 million. It will also grow business scale with a diversified earnings base, will allow the company to possess larger geographical footprint with a unique competitive advantage, including holding State and Commonwealth funding accreditations. Moreover, 2HFY22 CAPEX is expected to include $0.5 million for its Brisbane campus finalisation and $0.7 million for its IT & student experience upgrades.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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: As per ASX, the stock of ICT is trading lower than its 52-weeks’ average levels of $0.093 - $0.145. The stock gave a negative return of ~16.07% in the past six months and a positive return of ~17.50% in the past one month, seeming to look like on the path of recovery. The stock has been valued using EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some discount to its peers’ mean multiple, after considering negative ROE, acquisition risks involved and CAPEX to be incurred in 2HFY22. For the purpose of valuation, few peers like Evolve Education Group Ltd (ASX: EVO) and Cluey Ltd (ASX: CLU), Janison Education Group Ltd (ASX: JAN) and others have been considered. Considering the growing revenue, comeback of international students, RedHill synergies, upside potential in valuation, current trading levels, optimistic long-term outlook with the increment of deferred revenue, and the key risks associated with the business and current market volatility due to global tensions, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.110, at around 3:20 PM (GMT+10), Sydney, Eastern Australia, as of 29^th April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ICT Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Yellow colour line reflects the Trendline, which shows whether the direction of the scrip is upwards or downwards.

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

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