Wey Education is primed for rapid profit growth

Online education provider has the cash to help build scale
Thursday 11 Jan 2018 Author: David Stevenson

A new injection of cash could help online education provider Wey Education (WEY:AIM) to build scale, which is key to sustaining momentum in the share price.

Some of the £5m raised in late 2017 have already been used to acquire Academy21, a company that should bolster Wey’s ecademy business-to-business division.

Its services are primarily aimed at schools and local authorities who need to provide alternative education services to children who find attending mainstream school difficult.

The new cash should also help Wey Education gain more students for its online school, InterHigh, among other endeavours by adding firepower to its marketing and advertising efforts.

Executive chairman David Massie says the primary method of gaining customers is via promotions on Google, Twitter and Facebook, costing between £50 and £100 to recruit a student. The company is also using billboard and display advertising at London’s Waterloo station.

InterHigh is a non-selective fee paying secondary school providing live, interactive teaching of GCSEs, A Levels and some vocational courses.

Stockbroker WH Ireland says InterHigh has already proved its ability to generate significant cash returns, despite being in its infancy. It believes Wey should be able to grow much more rapidly than a traditional education establishment and potentially start paying dividends from 2020.

Money will be deployed to beef up the company’s overseas presence, especially in the Middle East and parts of the Commonwealth where there is a history of teaching the British curriculum.

The overseas marketing will mainly benefit Wey’s online language school, Quoralexis, and Infinity Education which is Wey’s selective, premium fee-paying online school.

Wey wants to be a leader in the use of artificial intelligence in the classroom and will initially use AI to establish the knowledge levels of students, to help apply appropriate teaching resources.

‘We believe education businesses can derive high returns for shareholders,’ says WH Ireland. ‘After factoring in the effects of (Wey’s) recent placing and acquisition, we see near-term fair value to be closer to 50p. However, after an initial investment phase to August 2018, revenue and profit have the potential to increase rapidly.’

WH Ireland forecasts revenue will double to £4.8m in the year to August 2018 – and then effectively double again to £10.3m in 2019. It forecasts £0.16m pre-tax profit this year and £2.16m next year.

Don’t be troubled by the current year’s price-to-earnings ratio which is a sky-high 98.7 times. The rating dramatically falls over the next few years as earnings shoot up. This looks like a classic fast-growth business with the right ingredients to excite investors. (DS)

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