Press release
(If you are not familiar with Wey Education then please see here)
On Friday afternoon Wey Education (WEY) issued a press release via Vox Markets saying that they had been granted government funding to create a “virtual summer school”. No figures are mentioned, but this appears to be wide in scope, covering ages 7 to 18 across four different offerings including both month-long summer programmes and throughout a full academic year.
The customers mentioned are schools and Local Authorities, probably placing it within their B2B, GCSE-teaching Academy21 division, although both InterHigh and Academy21 divisons share staff. They refer readers to their (primarily) B2C arm InterHigh for further information, perhaps with an eye on a marketing opportunity.
The form of delivery is ambitious, with augmented reality and AI-assisted learning mentioned. This kind of use of technology is something they have long talked about, but until now not something they have deployed, relying instead on live lessons as their key differentiator from most competing online learning provision. It is also something I have been sceptical about, but apparently their new director of education has made rapid progress and these technologies have successfully been used in the previously announced Covid-19-related assistance being provided in China.
Is it material?
The question for investors is then: Is this news material to their results in the near term, is it part of a long-term strategy that may or not pay off, or indeed is it just promotional fluff? For most companies the answer would be simple: No – it cannot be material because material news must be released via an RNS statement. But Wey is not “most companies”, as I summarised in my previous article as follows:
It is now very clear that Wey cannot be relied on to update the market in a timely fashion even when revenue is running significantly ahead of market expectations. Time after time I would have been far better ignoring their guidance and “soft” trading updates, and especially the lack of them.
…
Many companies, especially on AIM, are idiosyncratic in their communications with the market and the trick is to become familiar with this and use it to your advantage.
So it is down to investors to try to deduce the materiality of last week’s statement by ourselves.
Not yet!
Is is important to be clear that the only thing that has been firmly announced is government funding from Innovate UK to “create a virtual summer school”. Nothing more. There is no reason to believe Wey will make any profit from the creation of the school and so profits will only flow if somebody then pays for students to go there. Likewise there is no indication that the announced funding is material to existing turnover (or indeed whether it is a grant or a loan). Only revenue from the use of the virtual summer school is likely to create material turnover.
Business relationships with the public sector are intrinsically risky at the best of times, with companies exposed to onerous bidding processes, lumpy orders with unpredictable timings, imbalances of power and frequent changes of strategic direction. However the situation with the UK government has become increasing extreme with bizarre and capricious policies over coronavirus as well as re-nationalisations of rail and probation services. Therefore Wey have been very wise not to invest their own money in creating a summer school, regardless of any nods or winks they might have received about state funding for pupils to go there.
But maybe soon
As the government has struggled to get schools reopened there has been increasing talk of summer schools to try to reduce the damage inflicted on some children. Initially the talk was of teachers coming back into their schools to teach over the summer, but some teachers seem to have been stood down and the rest were never expecting to be called in. Lately the plans have been increasingly, as Woman’s Hour (24m39s) puts it, “shrouded in mystery”, but a statement is expected this week.
Wey’s press release says that the virtual summer school will be available “beginning this month”, which may be from Monday June 29th, but of course this is before the normal school holidays even start. Once the various countries of the UK have set the policy and funding for summer schools it is then likely to be the Education Authorities / Academy Trusts and perhaps the individual schools to determine how to deliver it. To some extent they may be able to provide in-school teaching by making overtime payments to teachers, but there will probably be some gaps to fill and quite possibly the Wey Education provision would prove cheaper and easier.
At this stage it remains impossible to estimate the take-up of Wey’s summer school offering – if the summer school idea is dropped then it will almost certainly flop, but you could imagine 20%+ of schools making some use of the facilities, which would be extremely significant, although it is difficult to imagine how they could deliver this without employing many temporary teachers, regardless of their claimed AI systems. With significant revenue continuing through August to their year-end for the first time, uncertainty over the company’s full-year performance is likely to persist even longer than usual this year.
Autumn term
It is becoming increasingly likely that teaching will not be back to normal in September. There will remain vulnerable teachers where the perceived or real risk of coming in is too high. Academy21 have long provided support to schools and again it could prove cheaper and easier to pay Wey than to try to find supply teachers.
However many schools are now preparing for blended learning in the new academic year, with pupils alternating between being in school and online activities, notably including live online teaching. With training there is no reason why most vulnerable teachers could not teach from home using off the shelf technology. It might not be as slick as Wey’s integrated and fully managed offering, but it is likely to be cheaper. It is possible that Wey might end-up offering a low-margin pass-through service where the school’s own teachers use their platform in a similar way that Medica are doing in their field.
Long term
I think the consensus is increasingly forming that life will be largely back to normal by the summer term next year. However that doesn’t mean that school needs to be ever quite be the same again. Though many parents have had a bad experience of children being given worksheets to download under the guise of “online learning”, the fully interactive live teaching that Wey offers has the potential to revolutionise teaching. The more positive exposure everyone concerned has to Wey’s services over the next few months the faster this revolution will proceed and the more Wey will be able to take advantage of it.
Political positioning
Other the past few years the Wey group have been gradually moving from the private and entirely independent education of children who have been failed by the state system to a mainstream part of the educational establishment: Academy21 have been brought into the group. InterHigh have dropped the slightly antagonistic tagline “A better relationship with learning” for the vacuous “Leading online school”. InterHigh have engaged closely with the government as it attempts to regulate, already implementing some of the expected provisions with the acquiescence to questionable government educational policies seem likely to be next
This movement was probably inevitable once Academy21 became part of the group and while it detracts from the differentiation / enhanced outcomes that InterHigh provides, it also should widen InterHigh’s addressable market. Certainly for the moment it has proven to be the right strategy, but such a tight relationship with the government creates risks that were not present when I first invested, including potential questions over InterHigh’s VAT status, attention from teacher unions and an increased dependence on unpredictable contracts and policies.
Summary
The press release probably justifies the increased interest in the shares over the past two days, but not any large rises. An announcement over summer schools may be imminent and the details will be critical. Following that the teacher union response will be important after which there may be a significant wait to see whether schools (etc) take up this service. Investors cannot rely on RNS statements being issued, but there may be opportunities for investors doing on the ground research.
Although any revenues will be temporary, Wey’s success here will have a considerable bearing on Academy21’s business in 2020-21 and long-term growth rates across the group.
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