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iCollege Limited (ASX: ICT) - Vocational Education Training (VET) provider in Australia delivering accredited and non-accredited education positioned to take advantage within the COVID space and growth expected from International students

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KEY POINTS

Maiden Profit Delivered in 1H’FY21: The Company delivered record revenue from course income in 1H’FY21 of $7.9m, up 12.3% on the pcp. The Company reported a NPAT of $1.2m, a maiden profit for the Company. The Company has been able to successfully pivot its focus to domestic students with disruptions to international student enrolments as a result of government imposed border restrictions in response to the COVID-19 pandemic. We expect the positive earnings momentum to continue through the 2H’FY21 and FY22.

Well Placed to Take Advantage of Government Stimulus: In response to the economic impact stemming from the COVID-19 pandemic, the Federal, State and Territory Governments announced a number of stimulus packages for the VET sector. These packages are to be delivered through RTOs with existing funding contracts with State and Territory Governments. The Company is well positioned to take advantage of the stimulus packages, in particular the JobTrainer and Infection Control Training Funds, with the Company having funding contracts with five of the eight States and Territories. The Company has been quick to pivot and offer JobTrainer approved and Infection Control courses through each of its three RTOs to leverage its position.
Spare CRICOS Capacity Provides Organic Growth Potential: With the new SERO Institute campus expected to be opened in 3Q’CY21, the Company is expected to have a CRICOS (international student) allocation of 1,700, up from the current allocation of 1,300. At 31 December 2020, the Company had 762 international students meaning with the addition of the new campus the Company is only utilising 45% of its enrolment capacity. We expect
the border restrictions to remain in place until 2022. Once restrictions are lifted, we expect international student enrolments to recommence at a strong rate, with Australia moving
up the ranks as a preferred study destination on the back of Australia’s response to the pandemic. We note that in the event the borders remain closed to international students for longer than expected, this will likely continue to weigh on enrolments.
Capital Position Boosted by Capital Raising: The Company had cash reserves of $5.5m at 31 December 2020. The cash position was boosted in November 2020, with the successful completion of a $5.5m capital raising (before costs) to sophisticated and institutional shareholders. The Company issued 55m fully paid ordinary shares at $0.10 per share to raise the capital.
Price Target: We have assigned the Company a price target of $0.22 per share. This represents a 76% premium to the share price at 11 February 2021. The price target was determined using a DCF methodology. We are expecting the Company to continue to grow revenue from training provided to domestic students with Federal and State Governments funding an additional 320,000 training places through the $1 billion JobTrainer package.
The Company is expected to obtain a revenue boost in 2H’FY21 and 1H’FY22 from the $80 million Infection Control Training Fund, which is designed to provide customer-facing workers training on how to operate in a pandemic environment so businesses and organisations
can operate in a safe manner. The Company was quick to move into action upon the announcement of the package, with the Company securing commitments with three groups to provide infection control training to their employees/members. We expect the earnings
of the Company to continue to grow in FY22 with the Company offering additional courses through all three of its RTOs to take advantage of the additional funded placements. While there is expected to be short-term disruptions to CRICOS enrolments, we view the risks
to be to the upside for the Company, with the Company expanding its CRICOS allocation through the addition of a new campus in 3Q’CY21, growth of domestic student enrolments and the potential upside provided by the Company’s latest acquisition, a majority share in the Hacking School. We have not attributed any contribution to our earnings forecast from this business but recognise that it is a unique education offering that has the potential to provide upside to the Company’s earnings in the coming years.