Stock Pitch - Wey Education (LON:WEY)

12th Oct by Edward Croft

13 comments 3311 reads

Wey Education (LON:WEY) was pitched to the Stockopedia Staff Investment Club on the 18th August and shares were purchased a day later at 24.45p. The share price has shown a healthy uptrend for more than 18 months that accelerated in March as lockdown began. The shares now trade at 26p.

TLDR;

Wey Education (LON:WEY) - a micro cap growth share benefiting from the accelerated shift to online education due to coronavirus and technology trends.

Bull Points: covid beneficiary, significant cost advantage vs physical schools, clear growth opportunity in a fragmented segment of a large market.
Bear Points: "it's just a school", no clear technology advantage, recent director sales, marketing execution risk, illiquid micro-cap, premium valuation.

Profile

About the Stock: Wey Education is listed in the Consumer Defensive sector, providing online education both in a B2C and B2B fashion. It trades at 26p per share, with an exchange market size (EMS) of 15k - it's very illiquid. This is a Micro Cap with a £36m market cap and is 'highly speculative' according to the RiskRatings. The StockRank is 77 - it's not cheap, but is profitable, growing and has a good Quality Rank of 84 and a strong Momentum Rank of 91.
Opportunity Type: In our Styles framework, this is a Highly Speculative, Micro Cap, High Flyer. It's a essentially a strong growth, low PEG share.

Business & Model

Company History: Wey Education was founded in 2004. It provides 100% online education across 2 business units: InterHigh School and Academy21. The company states that it has been "providing a positive alternative to physical schooling since 2005." It has educated 12,762 learners since it was founded, and has 144 employees.
Business Segments:
- Interhigh - this is the UK's largest online independent, fee paying school which the company says will have more than 2400 students by year end 2020.
  - It provides fully synchronous, class based, online Primary, Secondary and Sixth Form Education and thus competes with physical schools rather than the on demand educational sector.
  - Interhigh claims 73% Exam Pass Rates (A-C) for GCSEs. The Gov.uk website shows the new Grading system 1-9 for GCSEs and it's not clear if a C is Grade 5 of Grade…

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rizler007

13th Oct

Hi Ed, one I been keeping an eye on for a while.
How did the staff voting go on this one?

I noticed that section included in the novacyt pitch but omitted here? Would be good if it was included as part of one of the sections...?

Edward Croft

Yes of course... it wasn't clear cut.

Fegger

I am a parent of an autistic child. There is a very wide range in academic ability on the autistic spectrum from children that do not speak and communicate with difficulty, to those with low academic ability , to those with very high academic ability in the top 1% of children. There is a real issue in the provision of special needs education for autistic children in that many of the specialist schools do not provide for the academically able. I have given Interhigh as an option to several parents in parent forums looking for a good academic option for their autistic child(although I could not speak for the quality not having used them) I also think that local authorities might start to consider using Interhigh for certain special needs children as the £4000 price is compelling compared to the price for many specialist schools. It will have to be navigated carefully though as there might have to be some other specialist support provided onside but I am sure that this could be worked on with Interhigh. I am invested myself as I see this area as high growth and the price is very good value for a lot of parents who for many reasons look to see if there is an alternative to conventional schooling for their children

alan000@yahoo.com

An excellent piece, Ed.

It is interesting to reference a couple of points in your piece...firstly where you mention 2400 pupils at InterHigh, and also your thought that Forecasts could be beaten.

The InterHigh founder and CEO Jacqui Daniel was interviewed in June in an online Magazine called Muddy Stilettos (pasted below) and one eye catching quote was

"We’re always looking at new technologies and simulations! There are 3000 children taught by us at the moment and we expect 6000 by next year, so it’s a serious responsibility". https://muddystilettos.co.uk/k...

The 3000 number she quotes would also include their other business Academy21. Clearly if the Pupil numbers do increase at that level...even if it for Academic year 2021/2, then the group sales number could be at a different level altogether in a year to 18 months time. I also note from the Fees section of their website that Fees for the new Academic Year are +9.2% higher that last year...something you can usually only achieve from a position of strength with demand strong. If Sales were to outperform, the operational gearing is good...with Gross Margins rolling at c62%.

simso

I didn't realise they were targeting 6,000 next year. That would be quite a feat.

organictrader

I really like these write-ups, very interesting and a good learning curve on how to start to research companies looking to buy. I used to hold Wey Education (LON:WEY), however sold back in August for fear of it's toppy valuation. Good luck! Ed, is there somewhere we can see the SSIC portfolio?

Thx

SlickMongoose

They're obviously trading very well at the moment. I'd be very surprised if they didn't smash that 2021 forecast. The level of operational gearing is the question here. Gross margins around 60% but how much additional marketing & IT spend will be needed for the extra volume?

Snooker2020

Hi Ed,

I like the tone you bring to Stocko which is professional, informative, balanced and approachable. Personally, I don't like the style of SCVR ie Scott as it feels like a window for him to ramp holdings, where he declares them, and daily we see a barrage of abuse directed at anyone who says anything remotely opposing his view or simply to his disliking. Today he says he won't look at reader comments until his work is over basically bc it winds him up. Not exactly professional! SCVR is getting playground style. And even Twitter took action recently.

-20

paraic84

Good spot, thank you. And thank you for the article Ed. Wey Education (LON:WEY) has been on my watchlist for a while but I just feel the valuation is too high for a strategy which is about aiming to be merely the largest secondary school in the UK - and judging by the directors selling they may have thought that too! Academy21 might be picking up some nice business at the moment from local authorities to help children who have fallen behind, so that is worth watching. But for now I'll sit comfortably on my fence.

catalogue

16th Oct

Hi Ed, I am not an accountant so digging into accounts is what I do as my final check. Stockopedia is invaluable because of articles like this. However, if you want to find out how a company is doing ask their competitor. Who are their competitors and how are they doing? Turn that around and ask who would benefit from buying them if they are so good Rm (LON:RM.) but who else?

rogerphilp

What would worry me here is the effect of a vaccine. If that pushes us all in the direction of health safety and feeling secure, why have the kids at home? For the next 3 months no worries. After that, not so sure.

navtis

Interesting but a couple of thoughts. I'm with #rogerphilp on this; they're having a reasonable run for obvious reasons, but when it gets (if it ever does) back to 'normal', what's their USP? That apart, you obviously don't think it's worth much (14 rank?), don't even take a stab at a figure and a momentum rank of 95 is baffling; it's not quite worth what it was in June. Where's the upside?

20th Oct

There's a very interesting "results preview" piece written by LeoInvestor (who is a subscriber) on his blog - about Wey Education (LON:WEY) - you can read up here - https://leoinvestoruk.home.blo...

This is a quote - my eyes nearly popped at the 3,000 figure for Interhigh - I'd be very surprised if the student numbers are that high - but we shall see.

" Judging by the level of staff recruitment, website activity and updated figures on home schooling, all indications are that InterHigh student numbers are exceptionally strong, with this article putting current numbers at 3,000, versus 1,700 disclosed in an open day in late January and my estimate of under 1500 this time last year.

However there are reasons to be cautious. Pupil numbers normally build throughout the first term before the flow becomes broadly evenly matched between joiners and leavers, but there is no guarantee the same pattern will continue this year. The COVID-19 health crisis may have driven parents to InterHigh out of desperation and these pupils may not stay as they have in the past. The new flexible Rolling Contracts available will also attract more temporary students, although pricing reflects this and in exam years the year-long commitment remains. An increase in fees of 10% (for a yearly contract) gives further confidence.

Accordingly I see InterHigh currently trading an exceptional 80% ahead of last year, with risk evenly balanced between the upside and downside."

Last year they reported around November 11th - so it's not far away. Those will be figures till the year end in August. I noted in my piece that the Interhigh web traffic numbers for September were very strong indeed.

Stock Pitch - Wey Education (LON:WEY)

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Edward Croft

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Stock Pitch - Wey Education (LON:WEY)

TLDR;

Profile

Business & Model

Unlock the rest of this Article in 15 seconds

About the Author

Edward Croft

13 comments

Discover the metrics that are affecting Fatal error: Call to a member function get_name() on null in /app/modules/core/views/template/partials/app/app_template_signup.php on line 12

Discover the metrics that are affecting
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