**I am not able to attach my research report PDF for some reason. Not sure if the Strawman site is experiencing issues.
JAN are at the forefront of a rapid change in global behaviours when it comes to education. They have a developed platform with existing customers that is proving to be top of the market in a competitive environment.
Contract wins such as the OECD based-test for schools (PBTS) pays tribute to the quality of the platform offered by Janison. This contract [through to FY2024] is a key part of the thesis and is expected to contribute considerably to top-line growth. JAN have now signed up a fair amount of countries becoming the national service provider for the UK, US & Australia (key drivers).
The acquisition of the ICAS assessments business is another contributor to the investment thesis. In FY21 the business was purchased for a steal of $0.75m and produced revenue of $4.8m. As the effects of COVID dissipate I expect the business to contribute up to $15m in revenue, which reflects pre-covid levels. It is my believe that the business was sold off in a panic due to the onset of covid.
The business is very close to the inflexion point of generating positive cash flows. The balance sheet with $10m of cash and no debt is considered solid.
The revenues achieved through the assessment’s platform contribute to significant ARR growth in the coming years. The platform needs to develop to be hard for competitors to match and the costs for swapping platforms to be high for existing Janison customers, creating a stickiness effect.
Janison put on a trading halt today regarding capital raise. Great move by management to do it at a high valuation as it lowers the dilution. The presentation to Wilsons advisory makes more sense now as they were looking for fund managers to add to the register. Ben Clark from TMS capital was really impressed by Janison. If you watch "The Call" at Ausbiz, Ben is an amazing investor, his past record is exceptionally strong. For Ben to get excited by an edtech company is a first as IDP usually steal the conversation with every fund manager.
Soo, let the speculation begin. But first, reading the announcement, a couple of things:
Forward Speculation (Nothing true, just my thoughts)
Kazakhstan added to the list making it the 15th country doing the PBTS exam. Janison would be the IPP not the NSP - so less revenue. It is a good call as there are 7,500 schools there and physically getting schools together would be too time consuming. Tests expect to start October this year, so that is really quick. I assume it's for small number of schools but I can be wrong with this.
A really interesting note from Janison in their latest presentation deck to Institutional investors (i.e. Wilsons Advisory investor conference) - IPP ~ $200Kp.a. per country. Which means for the next 3 years Janison is projecting on average around 1,000 schools per country. For the IPP agreements, the expected ARR is $18M p.a.
For me the valuation comes down to the execution in US and how many schools they can onboard for the PBTS. Getting the first 1,000 will be difficult and thus, the partnership with Brightspace is vital.
Mr Market likes the progress.
Janison is national service provider for UK. This is astounding especially if they get 7000 schools in 2 years.
$7K * 7000 schools ~ $49M in revenue that’s if they get everyone in UK doing the PBTS exam. As a shareholder I hope they get there but what gets me excited is that they are a NSP. It is higher margins for Janison than being the ISP. The $120M in revenues by 2025 is one step closer to with this announcement. In saying that, we can’t predict the future and things are not going to pan out as you hope.
I hope they execute in getting more schools in UK than Australia on the second year of testing.
Before Janison announce their quarterly results either next week or the week after, I have pulled together a valuation that makes a lot of sense. This straw is my revenue growth assumptions, I could have put it in the Valuation update but that would be too long for anyone to read.
What no one is doing (professional investors/brokers) is analysing the potential revenue recognition from the OECD contract. From Janison's own estimates they aim to reach $120M in revenues by 2024. It seems absurd but when I played around with the numbers, there is a way for them to get there. OECD contract holds the key to their success.
I have not considered future countries like India, UK or Canada in the revenue growth assumption. Even if Janison win these countries, the first year is the pilot trial with less than 200 schools. Afterwards, more schools take the PBTS.
ICAS revenues long term would be around $15M assuming $15/test. The latest webinar indicates that $15M will take a couple of years, most likely 3 years for them to deliver 1M tests.
Finally, other revenues from Universities or NSW Department Education I predict around $20M would be possible. They will/have done deployments for SCIO, UOL, NSW Department (Check In and NAPLAN), Chartered Accountants etc... Therefore $20M revenue potential is a genuine possibility if Janison can maintain relationships with customers they serve.
Summing it up = $85M (OECD) + $15M (ICAS) + $20M (other) = $120M revenues by 2024.
I do not know what happens afterwards, but there should be a discussion on whether Janison can renew the OECD contract? If they can, then $300M in revenues by 2031 is a likely outcome.
Recent CEO signing, David Caspari will be awarded 700 000 perforamcne rights if the share price exceeds $1.00 by April 2022.
Long term incentive plans target the following thresholds:
Index linked total shareholder return: Threshold: Index TSR; Target: Index TSR + 10% CAGR; Stretch: Index TSR + 20% CAGR
ROE THRESHOLD: 10%; Target of 12.5%; Stretch: 15%.
The time consuming compilation of the OECD contract is done. Currently I am estimating ARR for all current contracts for the first year ~ $2.2M (which is not much) but let's look at the big picture.
OECD contract signed in 2019 netting 10 countries of which 2 of them are NSP (National Service Providers). There are 80 OECD countries participating in PISA every year with Non-OECD countries not restricted to participate. 12.5% penetration after 1.5 years is a very good start as they manage to win countries with very large populations (China, USA, Brazil). India is the next obvious target from my perspective. The first year is always the pilot trial with less than 200 schools per country are trialled.
Although, in the case of Russia 1,750 was trialled, the Russian Education Ministry have plans to expand to 70,000 by 2024. If Janison gets all of those schools, it correspond ~ $17.6M revenues. That's reaching my definition of TAM in Russia, need clarification from management if that is realistic. Aso another clarification is the contract itself, has it been revised to $250 per school over 200 schools? The exisiting contract is based on student test volumes in excess of 20,000.
Refer to my previous straws, and they are doing a great job. 68 schools signed up in the first 3 weeks for PISA, my question would be whether those are from ICAS. My hunch is most likely ICAS.
Now their latest announcement for USA made me quite excited "preparing for growth in 2021/22". My assumption would be that D2L integration has been completed and now they are netting schools. The TAM is given to us, it is 32,000 secondary schools eligible for PISA.
Just rough maths, if Janison gets the same number of schools as Australia (2000 schools ~ AU$14M). If they reach the TAM of 32,000 schools ~ AU$224M in revenues. Quite a massive gap between TAM and Australia. Realistically, by 2024, they could attain 20% market share. Which means 6,400 schools ~ AU$44M in revenues. We don't know until they give us guidance.
So I missed this part, but they are using BenBen as the NSP to deliver the test. The data obviously will be stored in China and not leave outside China. The likelihood of Janison being NSP there is 0%. However, they will recieve platform fee $150k p.a. I wonder if they also get the same fee for more than 200 schools -> $250 per additional school? It was not mentioned.
Pakistan delay till 2022 is curious, not sure why, should be checked by management. The test was meant to happen during November 2020. So delayed by over a year.
We are given enough information to project revenues for the OECD contract. Now revenue growth assumptions will be better explained as we can split OECD with other assessments revenues for the valuation. Gross margin should differ but only sightly. If gross margins were to make an impact, it would be on the NSP countries (Australia and USA), my reasoning is that additional supervisors/ employees are required to deploy, monitor PISA exams. More staff, more cost = lower gross margins. As stated in the last half yearly, they are currently experiencing 75%+ gross margins for OECD contract. To date, the key countries that will drive revenues for the OECD contract are (USA, Russia, Australia and China) - especially USA.
Final step -> Revaluation. Why does it take soo long? :D
Australian Ethical sold around 1% of their weighting in Janison. Before they had 9.37%, now it is 8.33%. My guess would be to prevent them owning more than 10% of a company as per their investment mandate.
They sold 2M shares on 1st March (at $0.635 share price) ~ $1.3M. Subsequently share price did drop from $0.635 to $0.59. It does not mean much, but if large holders sell there is a drop in the market value - in this case, not a substainal move.
Anyhow, Australian Ethical is trimming in very small increments. They still maintain a decent weighting on the business. I don't understand why they would be trimming for any other reason besides meeting the investment mandate.
Janison has grown and I will revalue the business based on the latest announcement which not only exceeded my expectations but provided more information on the OECD revenue projections. They will report more updates in the next quarterly, but I feel I understand the business well enough to revalue the business with the current financials.
Janison recently announced China is added to the OECD PISA based test for schools exams. They now have around 9 countries out of 90 countries conducting the benchmark test. China is apparently a large country with some of the largest education providers in the world.
Janison will not be the National Service provider, but they will be the technology provider. Now, if Janison was a normal technology business, they would have to compete with companies like Alibaba and Tencent to provide the infrastructure. However, as this is an OECD contract, China has no incentive to target technology providers as everyone receive the same benchmark report. Usually tech companies get wiped out by the large players, Janison is a rare case where that doesn’t apply. For the long term shareholder, we want contract to be renewed in 2024. If they can do that, then they will sustain their competitive advantage.
The latest update on the number of schools that have already completed the PBTS warrants a revaluation of the business. A couple of years, management was targeting $100M in revenues by 2025 and I thought it was a joke especially with the new CEO. Now, not so much. More on that on the valuation update ;)
Companies like Brainchip trading on future cash flows vs Janison who are displayig their competitive advantage with the market oblivious. I’ll take Janison all day.
Janison becomes the NSP in Australia for the OECD PBTS exam. Massive news as the fee for the test per school is $7k. Around 1,500 schools are contracted by ICAS, therefore you are looking at an additional $10M of revenue per year.
Last financial year, Janison did around $22M, so with this announcement you are looking at one country generating 50% of FY20 revenues. That’s if all schools that are customers of ICAS are willing to pay $7k per year to compare themselves with other schools in Australia and globally. I would be very surprised if schools cannot afford to pay for the exam. The gross margins for running PBTS is a minimum of 80% so ~$8M would fall to the bottom line. That is extremely scalable if Janison become the NSP for future countries.
Market cap of $150M for a company winning key deals in their expansion strategy. Take my money haha. Janison has more room to grow and hopefully the share price follows. It has to be a winner, I can’t see the bear thesis playing out with the current management team.
I took some notes on the call today, but before I started writing, I saw Matt Joas and an analyst from VGI Partners on the call. I think they are interested in the business and are doing further due dilligence before thinking about investing. Institutions are interested in Janison, hopefully having them on the register can improve the liquidity in the stock.
Here are my notes:
Janison is my largest holding in Strawman and I am impressed with their performance.
The key driver of the company is the Assessment division with a massive 143% growth. This is not from a small base. Going from $4M to $9.5M is a massive achievement. The main contributor is EA which they acquired dirt cheap for $700K. It has now generated $5M in revenues. Surely has to be one of the most ingenious acquisitions in the edtech sector. I view it as a 5x return in 6 months.
Another key metric to note is recurring revenues. Janison's ARR is $13.4M which is nearly 85% of total revenue. Contract wins fall to the bottom line and we will see margin expansion going forward. We saw that in the Gross margin of 54% up 8%.
The OECD contract is key as if you read my previous straws "Janison has a 5-year exclusive agreement with the OECD to assist its 90 countries sitting the tri-annual PISA assessment". They currently have the license to 7 countries: USA, Brazil, Portugal, Russia, Pakistan, Thailand and Japan. This has not changed from last time. I attached a screenshot below to show how much each country is willing to pay Janison for the PISA test. I assume this table will change when new countries come on board.
Janison is capitalising the EA acquisition by launching the REACH progression test in Q4 FY21. This is on top of the ICAS test revenues expected to happen around September. Janison was meant to deliver NAPLAN but due to COVID that was not possible. In saying that, it is a good thing as the 2021 NAPLAN will be fully digital. The pandemic has forced the NSW Department of Education to conduct exams digitally. Which means more future contracts for Janison. They have a 10-year relationship with the NSW Department of Education. I am hoping the Janison will be awarded a contract for the HSC exam this year. In saying that, they did generate $800K for creating the new assessment tool, “CHECK-IN” as COVID halted NAPLAN. It is a vital tool for teachers to assess how much of an impact school closures have on the student's learning. This could be an ongoing stream of revenue.
Looking ahead, they plan to win more countries from the OECD, expand partnerships for the assessments division, deliver NAPLAN and reinvest heavily into R&D to make the platform scalable. Janison generated a positive $1.3M operating cash flow and invested $2.4M back into the business for R&D. Thus, overall we saw net cash outflow. I don't mind that, especially if it involves growing top line and retaining customers for the long term. They have met guidance which is always fantastic to see and build trust with shareholders.
Overall, I trust Janison will succeed as they have proven they can execute, their assessment platform is well received by customers and the management is honest with expectations (very rare to find that from a small-cap company).
Janison certainly ticks all boxes for me. The current valuation at $128M market cap still feels undervalued in my opinion. The recurring nature of the revenues makes it very difficult to get killed by a competitor.
When I did my deepdive on Janison I noted that they acquired Educational Assesments (EA) for $750k, which had to be one of the cheapest acquisitions I have seen. The ICAS test alone did $7.6M in FY19 ~ 650k tests. UNSW Global wanted to get rid of EA soo badly that they did not bargain a premium.
Now, the acquisition is starting to pay off. They had to make the test digital and quickly deploy. Their guidance was $3.7M but it ended up being $4.8M from 300k tests . It is 30% above management expectations. What's even more impressive was that gross margins was 80% for the ICAS test - Janison did mention that the reason for high gross margin was that the development cost incurred prior to acquisition.
The primary reason for selling EA to Janison was the customer complaints. Parents found miscommunication from EA and did not have their complaints addressed. Now, customer complaints reduced by 98% and received overwhelming number of positive comments from teachers who felt that this year’s online test delivery was significantly better than in previous years.
"Next year the test will offer the full suite of subjects (writing test not delivered in 2020) in a more favourable environment where COVID is contained and a greater number of schools are able to sit the test. In advance of 2021 Janison will be investing to improve the quality of test questions – enriching content to enhance student experience and further raise the ICAS competition standard". What I find fascinating is the flexibility of the platform and how they have the capability to increase revenue per customer by potentially controlling pricing.
The real announcement is management guidance for 1HY21. In the Q1 update, Janison is targeting $15M-$16M, but now are saying it would be closer to $16M. I am assuming this is due to the $1.1M outperformance from ICAS. Platform revenues is expected to grow substantially from $6.3M in 1HFY20 to $11.6M in 1HFY21 (expected). This is recurring revenue, which means the business is further derisking. Exam services as expected would shrink due to Covid prohibiting in-person exams although it makes up small portion of overall revenues. Another guidance assumption is "through improved pricing, targeted cost reduction programs in Cost of Sales, and now a stronger than expected ICAS 2020 result, Janison is predicting gross margins for the first 6 months of FY21 (1H FY21) to be above 50%". Finally they are investing heavily into sales and marketing and are expected to increase Opex of approximately $1m per quarter.
Soo far, management has done a great job in delivering on their FY21 goals. What's even better is that they are keeping themselves accountable and keeping the market informed on the progress. The 1HY21 report will be very interesting to see, especially on how they are going with the OECD contract and customer wins.
My takeaways from both the Conference call and Annual report
What I did not like
What I liked
I leave with this, which in essence shows what they have done and how they see the education market in the near term.
"Janison is at the beginning of the third phase in its evolution. Our first phase began 22 years ago when Janison’s founders Wayne and Jacquie Houlden saw the role technology could play in transforming education. We then transitioned to our second phase in 2015, our ‘establishment’ phase. Under Tom Richardson’s leadership we have established a global customer base, market-leading product offerings generating recurring revenue, and solid financial foundations.
And that now leads to our 3rd phase, our ‘growth’ phase. The global education market continues to grow. By 2025, half a billion more students are expected to be in schools and universities, and education spend per student is increasing year on year. Prior to the extraordinary impacts of COVID-19, digital spend in this sector represented 2.6% of total spend. The pandemic has accelerated a decade’s worth of technology and cultural transformation in this sector into less than six months. It has done more to speed up the transition to online in the education space and the way people educate and learn than any other trend in recent times. Post COVID-19, digital spend will lift substantially as adoption levels stabilise at far higher levels than pre-pandemic. Janison is well placed to capture this market opportunity."
Please DYOR. There are a lot things missing in my takeaways so please read the annual report and presentations :) Also, the Zoom call was very hard to hear, it made notetaking a pain. FY20 was a lot of restructuring and implementation. To me, the reported numbers has not materially affected my valuation, but will revisit the valuation after the AGM. The AGM is on the 1st October.
FY20 Investor Presentation Released
Seems like an interesting company, though lots more research needed. They have a huge addressable market accentuated through the impact of COVID.
New CEO hopefully directs them in the right path.
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This makes or break for investors looking at this company. Currently, the company is controlled by insders. The insiders own 50% of the company with the majority stake coming Wayne Houlden (founder) who owns 40% through (Diptoe Pty Ltd and Tentickles Pty Ltd). Also former CEO Tom Richardson's trust own 7% through Lenroc Investments Pty Limited (Richardson Family A/C).
Hence, with high inside ownership, the stock trades are very illiquid and does not bounce during a market rebound. Also, the actions by insiders dictate the direction the company. They have the power to change course without scruitinty from outside shareholders. This can be both an advantage or hinderance as shareholders are dictated by insiders. Thus, investing in this company require high conviction that management executes on their vision. It is structured like a family-own business and shareholders are reliant on management.
When assessing management, Janison has experienced directors leading the company. Looking at the executive leadership team, nearly all of them have more than 10 years of experience. Most of them gained that experience in the education sector. From a board level, you double the experience, Tom Richardson the former CEO is the youngest with 19 years of experience. Did not know that Mike Hill (Chairman of Janison) was also the founder of Bomborra. One of the best investment managers in Australia. They invest in tech startups, grow them and exit through IPO. Those guys did 40% net of fees last year.
When you buy Jannison, you are relying on Wayne Houlden to execute on international deals. As of 2nd July, he was promoted to Vice-chair and is now gonna play a strategic role in the company. The current CEO David Caspari will rely on Wayne for M&A counsel. The company is like a family and depending on the quality, management could out/under perform. I think they can outperform.