LON:WEY | Wey Education - Thoughts After August 2018 Trading Update

28th Aug '18 by LeoInvestorUK

8 comments 4407 reads

Background and links

On 24/8/2018 Wey Education issued a detailed pre-close trading statement. Additionally their house broker WH Ireland issued a note, Graham Neary wrote a writeup and a private investor evening was held. The following day Executive Chairman David Massie did an interview:

(This follows much the same pattern as their previous substantial update in May:

)

Admission document

The following review was substantially written on the bank holiday weekend. It covers the events of last week and is based on the closing share price on 24/8/2018 of approximately 16p giving a market capitalisation of around £20m. It is written on the expectation the reader is familiar with Wey’s business and has read / listened to most of the above.

Trading Update

Timing

The timing of the update is noteworthy.

WEY’s year end is 31st August 2018. This is presumably to tie in with the academic year, however, unlike a traditional private school where the deadline for enrollment would have been before school holidays, WEY’s principal businesses will continue to take on new pupils right up to the start of term (10th September 2018) and beyond. Anecdotal evidence indicates there is a mini-surge going on in their InterHigh business around now for the following reasons:

Disorganised parents without a school place
Decisions being made following receipt of GCSE results last Thursday
Pricing generally incentivises starting at the beginning of term, but in particular they have a commitment-free half-term offer. The last opportunity to sign up for these and not miss a paid-for day of school was officially Friday, but certainly early next week at the latest.

Today’s announcement is 8 days before the year end and 11 days before the start of term.

The preliminary results are expected 29/10/2018 and so today’s announcement falls comfortably before the 2 months close period. I am not clear whether the timing of the preliminaries was set based on the timing of this update, or the timing of this update was to facilitate an aspiration to produce the preliminaries before then end of October. In either case, detailed, early reporting is very welcome and provides reassurance that the company are on top of their accounts.

Upbeat - really?

Thursday’s statement was widely viewed as upbeat, for example Graham…

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LeoInvestorUK

28th Aug '18

I have just tidied up the formatting of this post.

I also removed "b) the trading update was issued at a busy period for sales just before the FY end" under Short term drivers / Annual results upside. This is because the revenue recognition policy (from the last annual report) states:

Where a contract has only been partially completed at the balance sheet date turnover represents the fair value of the service provided to date based on the stage of completion of the contract activity at the balance sheet date.

Based on last year's report, these sales will be shown as "Recepts in advance" with an additional line for "Redundable deposits".

I would like to take this opportunity to issue a mini-apology to "netcutains" who posts on advfn and who I had the pleasure of meeting at the investor evening. I'd only read his recent posts there and although polite I'm afraid I was rather "advfnist" towards him, assuming he was a short-term trader despite his protestations. I have now taken the time to read his earlier posts and realise he originally bought for many of the same reasons as myself.

mrosbiston

thanks for the excellent write-up/analysis

tripuram

29th Sep '18

thanks for the detailed analysis leoleo73.

I do hold and running at 50% loss as of now... I am not planning to throw my towel yet. I have listened to the interview and feels more optimistic about the future prospects for the company.

brucepackard

6th Feb '19

Thanks for this post. I'm revisiting it in Feb 2019, and I think with the benefit of hindsight your analysis has been spot on.

My estimates for FY2019 turnover were "way" off - the 4th February 2019 trading statement says turnover is "expected to be in excess of £5m", versus my estimate of £7-9m. Clearly something went wrong.

What should I have estimated for FY2019 on 28th August 2018?

I completely failed to show my reasoning for estimated FY2019 turnover, so here's an attempt based on information available at the time:

FY2018:
Between £4.1 and £4.3m (up to a 5% beat)
Includes the acquisition of Academy 21 which turned over in £1m in 2017. At a 20% growth rate that might have been £1.2m in 2018 and since it was only owned 8 out of 12 months, an estimate of the contribution might be have been £0.8m.

FY2019
Full year contribution from acquisition adds £0.4m giving £4.5m to £4.7m. A growth range of 15-30% gives £5.2m to £6.1m.

So it looks like I just adjusted down the brokers forecast to account for my guess of the "insignificant" overseas revenue rather than doing my own calculation. Lesson hopefully learned.

What should I have estimated for FY2019 after FY results?

FY2018:
£4.2m
Includes £1m contribution from Academy 21 in just 8 months - £1.5m annualised. This would be a 50% growth on 2017 and so it seems more likely that there is a seasonal effect. I'll assume instead that it would have been £1.2m annualised (20% growth). H1 figures show £0.25m for 2 months, so it seems that Academy 21 turnover is lower in the period 1st October to 31st December.

FY2019:
Full year contribution from acquisition adds £0.2m giving £4.4m. Underlying turnover was reported as growing at 29%, so I would have upped the growth range to 18-32% giving £5.2m to £5.8m.

What does this mean now?

It appears that either the FY2019 turnover figure in the trading statement is particularly conservative, or underlying growth rates have fallen below 20%. Note that the trading statement does not present the "increase of over 24%" in turnover FY2018->2019 as an underlying figure, and it is not because FY2019 will have the benefit of four extra months from Academy 21.

It is difficult to infer too much from the cash movement of £4.2m at 31st August 2018 to £4.0m on 31st January 2019. Many 2018-19 academic year registration fees would have been included in the first figure, termly advance fee payments might well be ahead in the second figure, but monthly fee payments and payroll would be the same. There is some evidence of lower Academy 21 turnover in this part of the year, but they could have been collecting payments from the previous period. Looking optimistically, the cash figures are be compatible with adjusted EPS that is positive or even growing.

It will be interesting to see the forthcoming update from the house broker.

Whitbourne

28th Feb '19

I recently took a starter position in Wey Education (LON:WEY) encouraged by the simpler business model and the growth potential. It would be good to hear from anyone who was at the AGM on Monday. If you were there, was the idea of an investors' evening mentioned? I know one was planned and I'd be keen to attend. Thanks in advance.

24th May '19

Hi all. I am currently doing a full write-up of Wey on my blog. I've just posted part 1 and hope to do part 2 at the weekend. Once complete I will reformat it for posting on Stockopedia.

Wey Education - Thoughts after August 2018 trading update

Background and links

Trading Update

Timing

Upbeat - really?

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About the Author

LeoInvestorUK

8 comments

What should I have estimated for FY2019 on 28th August 2018?

What should I have estimated for FY2019 after FY results?

What does this mean now?

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