Introduction

I have discussed Wey in detail elsewhere, but Paul Scott's piece on their results yesterday struck me as a very useful counterpoint to my bullish stance.

Although he is generally positive on the company and the service they offer, he only values the company at £10-20m, equating to 7-14p, versus a current share price of 25p and my conservative valuation of 55p. Now clearly the 55p takes into account assumptions on short, medium and long term growth, discount rates and terminal valuation, but if I can't demonstrate they are worth more than 7p without fancy projections then I've probably got it wrong.

Therefore I thought it would be useful to try treating Wey as a deep value stock rather than a growth stock to see how it looks from a completely different perspective.

Accordingly the first point of call is the balance sheet.

Balance Sheet

The largest item by far there is cash of £6.5m, but this must be balanced against deposits and advance payments of £2.3m, which could reasonably be considered "customer money", leaving £4.2m of "free" cash.

Trade receivables of £1.0m are balanced with £0.6m of trade payables and £0.3m of accrued expenses. Trade receivables have previously included significant aged debt but these were already written down aggressively in the 2019 accounts, with debt over 4 months old then held at just 25% of the gross amount. Therefore I believe that trade receivables and payables + accrued expenses cancel each other out.

The next largest asset is goodwill from the acquisition of InterHigh and Academy21. Since this is carried at the same value as last year it is evidently not being amortised which then heightens questions over whether the current valuation is fair. InterHigh, which brought in around £5.5m of revenue last year at a 60% margin, is currently on the books at a laughable £200k. Academy21's on at a more proportionate, but still very modest £1.4m. Still, the conservative thing to do is to ignore goodwill as an asset, especially given the lack of amortisation or disclosure around the annual impairment review. Similarly many would write off intangibles, especially noting that software is amortised over an excessive 8 years.

Property, plant and equipment consists of mostly office equipment but also some leasehold improvements. Your opinion of the latter depends on your opinion of their need for office space. Most staff (the teachers) have…

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