Acquisition to boost Janison’s earnings by 70%
The timing of an announcement this week regarding an important acquisition by Janison Education Group Ltd (ASX:JAN) couldn’t have been worse.
Both global and Australian equities markets went into freefall on the day the group informed the market that it had entered into a binding agreement to acquire LTC Holdco Pty Ltd (LTC), the parent company of Language & Testing Consultants Pty Ltd.
JAN is an integrated learning business that is used by large enterprises and government departments to build capability in their workforce, indicating that the company benefits by being leveraged to relatively essential spending.
The group also provides a leading global platform for the provision of digital exam authoring, testing and marking which is sold to national education departments, tertiary institutions and independent educational institutions.
LTC will be a good fit with the business as it is a market-leading examination services business headquartered in Sydney with operations both domestically and, increasingly, internationally.
The company facilitates outsourced end-to-end exam management services on behalf of large universities, colleges and professional certification bodies.
Acquisition represents a bargain
The cash and scrip acquisition will be immediately earnings per share accretive, and it will have a significant impact on earnings in fiscal 2020.
Such is the earnings boost provided by the acquisition that it prompted Bell Potter analyst Alex Mclean to upgrade his underlying EBITDA forecasts for 2020 by 71%.
This would be the first full year contribution by LTC, and in increasing his forecasts from $3.9 million to $6.7 million, it has made fiscal 2020 a transformational year for the group.
In terms of the bottom line, it will increase more than three-fold and earnings per share will nearly treble to 2.3 cents taking into account the increased shares on issue from the $6 million equity raising that the company has undertaken in conjunction with the acquisition.
Upgrades to earnings and price target
Mclean views the acquisition as extremely good value, noting that it is paying approximately five times fiscal 2018 EBITDA, while Janison’s underlying earnings multiple for fiscal 2020 prior to the transaction was 14.
Taking into account the upgraded earnings impact and the strategic advantages of the acquisition, he has increased his earnings per share estimates for fiscal years 2019, 2020 and 2021 by 52%, 43% and 22% respectively.
This has prompted him to increase his 12 month share price target from 50 cents to 60 cents, implying upside of approximately 60% to Wednesday’s closing price of 38 cents.
While the downturn in equities markets arguably overshadowed this promising development, it would appear that Janison’s financial metrics will do the talking in the near to medium-term, providing share price momentum commensurate with its substantially upgraded earnings profile.