Yesterday I attended a presentation by Wey Education (WEY). This is a small AIM-listed company in which I hold a very few shares. This is one of those “hot” AIM companies where the valuation discounts a lot of anticipated future growth in revenue and profits. Last year (year ending August 2017), revenue was £2.4 million (up 60%) and post-tax profits all of £17,000, albeit a big improvement on the previous year. Broker WH Ireland forecast growth this year partly because of a recent acquisition and from anticipated investment in marketing – they raised £5m in a placing for the acquisition of Academy 21 but will have lots of cash left over from that for other purposes.
I won’t say much more about the financials because the seminar of over 2 hours barely mentioned them but concentrated on operations, business model, marketing etc. I understand there were a lot of questions asked about the financials in the mornings AGM particularly on “related party transactions” from speaking to the Executive Chairman David Massie before the meeting started. He also mentioned some of the history of the company which seemed somewhat “fraught” with a legal suit against the former CEO that they won (see “exceptionals” in the accounts).
Wey focuses on on-line education and have four primary brands – InterHigh which provides iGCSEs and A-levels on a non-selective basis, Wey ecademy which sells similar courses but on a B2B basis to education providers, Infinity Education which is a selective premium fee paying online school now mainly focused on international markets and a new venture named Quoralexis which provides courses in English as a Foreign Language (EFL).
The business has been around a long time with the founders still involved, but it is not regulated as a “school” for technical reasons but it does qualify as an “examination centre”. Seventy percent of pupils are based in the UK and there are 5,000 pupils with about 1,000 “live” lessons per week. All the teachers are employees, although some are part time.
The above is taken from the first presentation session from David Massie. As he said “Education is the last great unreformed business” where the vast majority of provision is conventional classroom education. The latest innovation has been moving from blackboards to whiteboards! Comment: you only have to look at the national education budget to see that a very high proportion of the expense is in teachers’ salaries and their productivity has not changed since Victorian times.
Apart from that aspect there are a number of pupils who need on-line education. For example, offspring of ex-patriots in remote locations, those suffering from medical conditions, those subject to bullying at school, those wanting a better education than local schools can provide, or waiting for school places, and for several other reasons. Pupils can interact via speech, text or private messages with the teacher and the lessons are taught in real-time like a conventional school – they are not self-paced downloaded videos.
InterHigh is ramping up marketing expenditure, recruiting a finance director and after that probably an HR director. Marketing will include a series of video advertisements in Waterloo station. They see that as a location with high footfall of folks likely to have children and an income to cover the cost. No cost for that advertising was mentioned but I can imagine that as being expensive. I asked Jacque Daniell who looks after marketing later about whether they had tried direct mail (off or online), but it seems they only use that in promoting Wey Academy.
They do have some internet marketing – for example have a tie up with Mumsnet, but their level of search engine awareness is low. Type “online gcse courses” into Google and they are nowhere, with lots of competitors offering lower cost with different course provision models.
The InterHigh web site does not look great in marketing terms – lots of talk about “features” and what they offer, but no great focus on benefits, on the home page. However there are some good “customer stories” on other pages.
Comment: I do not think they have cracked the marketing model as yet to really get business ramping up quickly. I am not convinced that advertising to every man/woman and their dogs on train station platforms will be cost effective. There are surely lots of ways they could spend more on internet marketing which might be more cost effective because you can focus more specifically on the likely target markets.
Jacque spent a lot of time explaining their interest in AI (Artificial Intelligence). When I asked how that would be beneficial when it seemed to me that they had a good product and it just needed to be more actively marketed (i.e. AI might be a management and funds diversion), she said it would help to “engage” pupils. Presumably she meant recruit pupils because retention seemed to be of lesser interest (they have a high “drop-out” rate but that is probably to be expected from the kind of pupils they attract).
Comment: As a former IT professional, I find the current focus on AI to be as over-hyped as it was back in the 1980s. I was involved in a natural language database inquiry project at the time, and that area has certainly moved ahead since – for example Google on my smartwatch gave a sensible answer to the verbal question “does a fruit fly like bananas” which can be one of those tricky questions for such systems. When I asked it “does time fly like an arrow” it correctly identified I was trying a well known semantic trick question. A bit of “ad-hoc” programming in there I suspect. But how will AI, which is a very broad field, really help the sales revenue or operations of Wey? I am not clear at all.
These are a couple of questions that were not answered in the seminar (and not enough time left for questions when the whole event was too long):
- What are the main competitors? (mainly conventional schools I would guess).
- What percentage of the on-line education market do they have?
I am also not clear why they are investing money in Quoralexis – EFL courses seem to be a very crowded area although David Massie said the current providers are “rubbish”. It would seem to be a diversion to me.
Incidentally when I am looking at early stage companies I like to check they have the basics right – like registering their brand names as trademarks. I could not find a UK registration for “Quoralexis”. Nor could I find anywhere on their web sites some basic legal terms/conditions of use, claims for trademarks, nor any site search function to help either.
In conclusion, this looks to be like a lot of AIM companies. The management tell a good story about the prospects for what they are offering, and the broker has great projections for future revenue and profits, but there is a lot still to prove I feel. The marketing seems somewhat amateurish and they need to spend a lot more on that to really drive awareness and take-up (they only spent £160k last year on marketing which is about 6% of revenue – not nearly enough). That does of course assume that the market is there to be developed to a decent size.
The current market cap is about £41 million. The “story” being promoted by David Massie sounds attractive but I’d like to see more evidence of success in getting a return on marketing expenditure and ramp up in sales before punting a large sum on this company. But that is of course only my personal opinion and no recommendation to trade in the shares of this company one way or another. Perhaps one to keep “under observation”.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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