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iCollege Limited – Education Provider Growing through Earnings and Acquisitions

iCollege Limited – Education Provider Growing through Earnings and Acquisitions
iCollege Limited is an Australian consumer services company focussed on vocational education.
Mar 08, 2016 Tags: stocks, ASX, ICT, Education

iCollege Limited (ASX:ICT) is an Australian consumer services company focused on vocational education. iCollege is assembling a portfolio of Registered Training Organisations (“RTO’s”) via acquisitions. The Company also operates a cloud-based learning management platform that offers a range of accredited and non-accredited courses.

The registered head office is in Perth, Western Australia. iCollege listed on the Australian Securities Exchange in May 2014 via a reverse takeover of DGI Holdings Limited.

Asset Overview –  RTO Portfolio

iCollege’s primary asset is a portfolio of Registered Training Organisations (“RTO’s”) as well as software associated with its online learning platform.

The Company currently owns three RTO’s and is in the process to acquire a further three. The RTO’s combined offer more than 70 accredited and non-accredited courses across 22 industries. The principal location of operation is Australia.

iCollege fully owns and operates Bookkeeping School Pty Ltd, Mathisi Pty Ltd and Management Institute of Australia Pty Ltd. iCollege completed the acquisition of Celtic Training and Consultancy Pty Ltd in January 2016.

The company has developed the iCollege platform, a cloud based learning management platform that allows Australian students to complete accredited courses in their field of study. The e-learning platform is set to be integrated in each acquisition.

Industry Background – Private Sector VET Market Share Exceeds 30%

Vocational Education and Training (“VET”) refers to applied learning programs such as apprenticeships, traineeships, and work skills. These programs can range from entry level qualifications, advanced vocational diploma courses, and pathways into higher level tertiary education.

The domestic market for vocational education and training services is an $8billion industry, of which, around 80 per cent of revenue is supplied via State and Federal Government funding programs.

From 2009-13, industry revenues expanded at a compound average rate of 6 per cent pa as Government funding mechanisms shifted toward a ‘demand driven’ model.

The 2009 restructure extended a two-decade trend which has seen private based VET services providers attract an increasing market share. Due to their licensing requirements, private providers are known as Registered Training Organisations (“RTO”).

After expanding at a compound rate of 19 per cent pa over the past two decades, the number of RTO’s in Australia now exceeds 5,000, accounting for over 30 per cent of enrollments and completions.

A task force, established by the Federal Government in November 2013, is currently investigating impacts of recent reforms to the VET industry and opportunities for further reform.

Development Strategy – Gain Synergies from Acquisitions

iCollege is principally focused on building a portfolio of VET services that achieve better than average completion rates and employment for students.

The Company is positioned to capitalise on initiatives likely to emerge from the Federal Government task force and current fragmented status of RTO’s within the VET industry. No single RTO has a dominant market share, providing iCollege the opportunity to become a consolidating force.

With uncertainties created by the Federal Government task force supressing corporate activity in the industry, iCollege has opportunity to enter mergers and acquisitions with other providers on favourable terms.

Thus far, the Company has secured acquisition agreements with six institutions forming its foundation RTO portfolio.

Consolidation of overlapping cost centres, and cross promotion of courses within the portfolio is the Company’s current priority.

Subsequently, new partnerships with accredited industry trade bodies, and reducing its reliance on Government funding are expected to become a focus.

Whilst Government sources have historically generated 80 per cent of pro forma income within its RTO portfolio, initiatives are in place to reduce Government contributions to circa 50 per cent in 2016, with fee paying students forming the balance.

Economics- Completion Rates Exceed 90%

The principal economic drivers for iCollege are student enrollments, completion rates, occupancy and teaching related personnel costs. In order to drive growth, completion rates and subsequent employment outcomes are a priority for management.

Enrolments which fail to complete impair an RTO’s ability to collect revenue. Although student completion rates have been rising across the VET industry for the past two decades, non-completion remains a major issue.

Industry average completion rates for both public and private providers stand at ~25 per cent. We understand completion rates within iCollege’s portfolio are markedly superior, in the order of 90-95 per cent. By comparison, the average RTO completion rate stands at ~33 per cent.

In order to sustain superior completion rates, a principal focus for management is procuring partnerships with industry bodies and stakeholders to maximise employment outcomes.

Whilst completion rates have been rising across the VET industry, we understand recent declines in employment rates post completion are a major driver of the Federal Government’s current task force.

Investment View

iCollege offers speculative exposure to domestic demand for vocational education and……

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