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In December I upgraded my stance on AIM-listed provider of e-learning software and business training ILX Group (LSE:ILX) to ‘speculative buy’ on the back of the moves being made by new executive chairman/interim CEO Wayne Bos. These continued yesterday with the announcement of a partnership with, and option to acquire, CareShield Ltd, described as “the UK’s leading provider of online learning specific to the health and social care sector”. The following updates my view on that share tip here…
Click here to read that December update and upgrade
CareShield is to partner ILX in the field of mandatory training in the health industry, with the potential to expand into new sectors, with ILX having a three-year option to acquire CareShield “at a valuation based on a multiple of audited earnings. There is a minimum exercise price for the option of £2 million and a maximum exercise price, capped at £6 million”. This follows from an announcement just last week of a new organisational improvement and project management consulting subsidiary in Australia, ILX Consulting Pty. With the founding team of this having significant successful experience of leading major programme deliveries in the corporate and shared services sector, there are significant relationships through these, as well as the existing ILX business, that the business is looking to tap into – with “significant leading Telco and Government businesses” noted to be among the division’s first clients.
Whilst further detail is lacking at this stage, there are clear links between the ILX business Bos became interim CEO of towards the end of 2012 and the avenues he is now exploring – noting in the CareShield announcement that the partnership means “forging a stronger position for ILX within the e-learning sector” and in the ILX Consulting one that “we envisage prospects for introducing ILX training products to the sort of organisations ILX Consulting’s team has served so well over the years, and vice versa”. In particular, the new Consulting business follows the December acquisition of consulting and project management services company Orbar Ltd – this covered in my previous update (HERE)
At a current 9.875p, ILX shares are slightly lower than as per my previous update and the company is currently capitalised at less than £4 million. Since my last piece Bos’s investment vehicle has invested a further £400,000 via a 12% convertible (at 10p per share) loan note, which comes with a one-for-one warrant convertible at the same price per share. This is undoubtedly a high price for ILX but with a continuing dearth of finance availability and the company’s interims (to the end of September 2012) having shown an underlying pre-tax loss of £0.262 million on revenue of £6 million, from a corresponding prior year period profit of £0.187 million, with net debt totalling £0.63 million and trade & other payables (£3.66 million) outweighing trade & other receivables (£2.18 million), the company probably had little hope of competitive external financing.
The above should make it clear that any investment here remains speculative at this juncture. However, the recovery potential can be seen in that the company delivered an underlying pre-tax profit of £0.968 million on revenue of £13.5 million for its last full year and I continue to have faith in the experienced Bos – who I regard as a sharp cookie. Results for the current year will, I expect, not be pretty and this is certainly not one for the risk averse – but the recovery potential from the current lowly levels means the adventurous might wish to take a small, speculative punt.
Tom Winnifrith writes for 10 UK and US websites. He publishes a free twice weekly Newsletter (The Tomograph) with links to all of his articles plus some unique content including a FREE SHARE TIP in the Wednesday edition. To sign up to that newsletter click HERE
You can also follow Tom on twitter @tomwinnifrith
Dear Andrew
If you follow the link you will see that I fessed up several times to this being a godawful tip. I hide nothing
Best wishes
Tom
Hi Tom,
I have recently discovered your column through a post over on iii. The company came up in one of my screeners. Now having read some of your articles, I have found and analysed a different company of your finding, ILX.
It would be fair to say that typically there can never be enough analysis, however in the case of ILX (depending on your preferential KPI’s) the historical quantitative data of the previous management’s performance is of limited use. The one thing I can take from it though is the decline in the previous 5 years Free Cash Flow from £7.5m to just £0.5m in the last full year accounts.
Using this as a base and bearing in mind the company has historically performed better H2, we can look at the recent interims post restructure which reflects already better performance. FCF for the half year is already £0.6m, £100K more than the previous full year figure. With savings being now made through cost cuts and the additional modest cash flow through Obrar (prior to any collaboration with Careshield) should see cash balances rise further, strengthening the company position.
On historical profit at an average of £1.5m post tax, which is certainly now achievable under current resources and management, assuming no further dilution would see an EPS return to 4.8p. At the current price, it would give a P/E of 2 which I’m sure we both agree would not reflect the company adequately. So, my initial medium term target for this company is 48p on a multiple of 10, with a potential re-rating to (ironically you original recommendation!) at 72p on a multiple of 15, should the company’s earnings prove stable over the course.
Speculative buy, yes. But due to the short termist nature of the markets I would suggest re-rating to outright buy as soon as figures confirm a turnaround and new trend in earnings.
Cheers
Robert
What is the general consensus of the new NOMAD’s appointed earlier today? Any idea’s on the potential advice sought?
Tom, you mentioned that you might make an investment decision here following converse with Mr Bos. Have you resolved with a position?