Business Description:
Makes and sells interactive education systems to schools
Products sold to over 1.2 million classrooms in 72 countries with the help of 1000+ global partners
Product are quite expensive but the acquisition of Sahara can reach a broader market with cheaper products
Catalysts:
Edutech sector is young and growing rapidly
Global smart education and learning market is estimated to grow from $182.8 billion in 2019 to $680.1 billion in 2027, a 17.9% CAGR
Acquisition of Sahara will open new markets for them
Government desire to upgrade public school system
Covid-19 and homeschooling has shown the importance of technology in education
Risks:
Fragmented industry with high competition
Most public schools in the US can’t afford their products without government assistance
Use of stocks as currency for acquisition and debt repayment
Financial Analysis:
Revenues of $28.9 million in TTM down from 33.0 million in FY19 (ended in December 2019) and $20.7 million in FY16
Operating loss of 8.36 million in TTM vs $8.06 million for FY19
Net loss of $10.4 million in TTM vs net loss of $9.40 million for FY19
Negative FCF of $5.00 million vs Negative $4.27 million for FY19
Balance Sheet
Total assets: $124 million ; total liabilities: $51.0 million; book value: $73.1 million
Cash: $9.62 million, debts: $22.3 million, current assets: $56.3 million, current liabilities: $31.2 million
54 million shares outstanding vs 10.7 million in FY19
Financial data for Sahara:
Revenues of $108 million in 2019 with annual growth rate of 18% in the last five years
Net income of $9.05 million in 2019 with annual growth rate of 19% in the last five years
Book value of about $30 million
Sahara Acquisition Details:
Total Purchase price of GBP 74 million ($94.9 million) in preferred stock and cash
GBP $52 million in cash
GBP $22 million in preferred stocks
Valuations
My personal Biases:
Very Bullish on industry and company
Skeptic about the high share dilutions from stock compensations, using their stocks for acquisitions and convertible debts
Assumptions for base case:
With the big market potential, $100 million valuation seems justified with the current book value and cash flows from Sahara
We will go directly into an exit multiple analysis with focus on PS ratio for 2025
12% annual growth in revenues with profit margins of 8% achieved in 2025
Bull case with extra 20% revenues in 2025
Bear case with 20% less revenues in 2025
Shares outstanding increases to 200 million
Conclusion
Undervalued if we look only at business potential with profitability in sight
Wall Street seems to underestimate the Sahara acquisition
But adding the factor of share dilutions, it doesn’t look attractive anymore
Since IPO in late 2017, market cap is up 145% but stock down 56% with over 400% increase in shares outstanding
