Canaccord upgrades Learning Technologies to 'buy'

Canaccord acknowledged that Learnings Technologies' e-learning content and services business, which makes up around 25% of sales, suffered a 22% sales decline year-on-year in the first-half as a result of project delays due to Covid-19.

However, the analysts believe consensus estimates underestimate the potential for recovery and said their modelling suggests market expectations "could underestimate continued growth" in OpenLMS, which LTG acquired earlier in the year.

The Canadian bank added that following Learnings Technologies' "opportunistic" equity raise earlier this year, it estimates that the company should have in excess of £80.0m in net cash at the end of the year.

Canaccord highlighted a "high chance" that at least some of that will be deployed in the next 12 months and estimates up to 14% underlying earnings accretion potential, assuming it acquires at 12x EBIT, similar to multiples paid for the last two larger deals.

"LTG's 24x price-earnings ratio now stands out as relatively cheap at a 20% discount to peers and towards the lower end of the shares' long-term range," said Canaccord.

"With organic growth expected to improve, upside potential to consensus estimates and potential accretion from future M&A, we expect the shares to re-rate to the peer group," concluded the analysts, who also raised their target price on the stock from 115.0p to 150.0p.