Wey Education and Regulation

(If you are not familiar with Wey Education then please see here)

In my previous article I touched on regulation of the online schools sector. In business it is almost always the case that regulation strengthens the positions of the largest players and increases barriers to entry. In some cases the reduction in customer choice can reduce the size of the market, but in others regulation can legitimise an industry. Accordingly it always looked likely that Wey Education would be a strong beneficiary of regulation.

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Wey Education and summer schools

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.

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Petards – Update

Background

I’ve previously covered Petards, but I’ll give a full introduction here.

Petards describe themselves as a “developer of advanced security and surveillance systems”. Their three product areas are Rail (CCTV and other sensors), Traffic (ANPR systems) and Defence. They first came to my attention at Mello Chiswick 2018 where the presentation by Paul Negus (Group Business Development Director) went down particularly well with attendees.

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First cut – IMMO, LOOP, ESP, ACRL, MPAC

Note: While the 7:59 cut format was popular, most didn’t read it until after 9am, and while it was fun predicting the share price reaction just ahead of the open, I could have easily “cheated” by getting pre-market quotes. Therefore I’m going to publish when I’ve covered everything I want to rather than at a particular time. “First cut” will remain less detailed, less edited, but more timely than my full articles.

IMMO – Fund raising

Immotion have virtual reality experiences installed in aquariums and other entertainment attractions. They say:

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7:59 cut – Staffline (STAF)

A lot has happened since I last wrote about Staffline’s most recent accounting problems at the end of January. The resignation of Chris Pullen announced on 20th February was a critical step towards making the company investable, but it is the slow-motion tsunami of UK coronavirus infections and eventual government response which will be uppermost in investors minds.

Given that their balance sheet is financially geared in the extreme, that they are a forced seller of at least one of their subsidiaries in the worst business environment in living memory and that they operate a staffing agency in an economy where hundreds of thousands of people have been thrown out of productive work, it is hardly surprising that the share price has fallen heavily from 64p to 16.5p in less than two months.

Yet a few days ago I bought in – why?

Firstly, it has long been clear that they are far too strategically important to the functioning of UK economy to be allowed to fail in a disorderly manner. The best way to avoid this is not to let them go into administration, and the best way to do that is forbearance from their banks. Ever since the GFC the UK government has had significant influence with banks. Furthermore they no not appear in danger of exceeding their facility size, just of continued covenant breaking.

Secondly, their business sectors are relatively defensive, including significant amounts in food and they are the go-to people to cover staff sickness.

Thirdly, I believe they are significantly cashflow positive and are trading at a PE of around 1. This valuation reflects a very high level of cheap debt funding which would not normally be sustainable given the evident extreme risks to the banks.

Therefore I could see a situation where they were unable to sell an operating business, but the banks were unable to foreclose or change their terms, allowing the company to pay down debt at its own speed. At this point they are on a genuine P/E of 1x.

Today’s statement reinforces this view.

Note: This is an exceptionally high risk investment. They are likely to struggle to produce audited 2019 accounts, stand a very high chance of being suspended at some point and have a high chance of insolvency.

7:59 cut – Beeks H1 Results

Beeks have issued their H1 2020 results this morning. The key figures are revenues of £4.29m (up 23%) and terminal recurring revenue up 37% to £10.20m. Revenues are moderately below my model for H1 apparently principally due to weakness in their core business. There also appears to have been no growth at the CNS acquisition, but this was as guided.

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