Companies: ILX   

Nine months ago, shares in the vocational training company, ILX Group, were flirting with the 100p mark. They recently touched 48p and currently trade at 54p. In between, the company disappointed by reporting profits for 2006/7 way below original estimates as problems, centred mainly on a recent acquisition, resulted in a complete reorganisation of one half of the business.

But ILX has put those problems behind it. The latest half-year figures, reported in November, demonstrated a terrific recovery. Forecast profits of £2 million pre-tax this year (compared with £1.5 million last year) look easily achievable, putting the shares on an earnings multiple of under eight. That looks exceptionally mean for a business that is now one of the dominant forces in its chosen market.

The valuation defies financial logic in other respects, too. The biggest driver of profits growth at ILX has come from last year’s acquisition of the Corporate Training Group (CTG), which specialises in training graduate intake at the investment banks, and constitutes about half the business. ILX agreed to pay £12 million for CTG. To date, some £8.5 million of that has actually been paid, with the remainder tied to earn-outs that will almost certainly be achieved. Yet, with the shares at 54p, ILX as a whole is now valued at only £10.4 million. In other words, the other half of the business is in for free.

In addition, the price paid for CTG looks low by comparison with other deals in the sector. A couple of months back, Wilmington bought one of CTG’s competitors, Matchett. Drawing a line through the price paid then would make CTG worth closer to £19 million than the £12 million paid by ILX.

With so much of its business in the City, there have been concerns that CTG will suffer from the retrenchment under way among the investment banks. But the interim statement from ILX’s chief executive, Ken Scott, made it clear that forward bookings (which can run a year or more ahead – giving the business great earnings visibility) were up on a year ago and a number of clients were booking early to secure their preferred time slots. ILX is currently building a number of e-learning modules for CTG to supplement its classroom training products and allow it to compete across a wider spectrum.

The other side of the business is now called the Best Practice Group. It focuses on training people for two key qualifications – ‘PRINCE II’ for project managers and ‘ITIL’ in the service management area. It is the only company in its market that can offer both accredited classroom training and e-learning products.

The first half saw something of a hiatus in demand for ITIL training as an updated qualification – ITIL version-3 – was introduced. Customers held back until they could send people on courses for the new qualification. ILX stole a march on its competitors by being the first firm to launch an upgraded e-learning product and it stands to reap the rewards in the second half (to end-March), which is in any event by far the busier time of the year for the best practice operations.

I have tipped ILX here before and its performance has been disappointing. Half a dozen acquisitions in the space of five years have expanded top-line profits but done little for earnings per share. That is all due to change in the next couple of years. I expect earnings to top 7p a share this year compared with 5.3p last year. The firm broker, Charles Stanley, then sees earnings growing to over 9p and 11p in the two subsequent years.

Encouragingly, Scott and colleagues have themselves been buying more shares of late. It is well worth following them at the current price.

ILX Group	AIM	£4.36m	22.50p	-0.50p
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