Melorio

High growth Melorio, which provides value-for-money vocational training to the construction, information technology, logistics and healthcare sectors, has cheered with forecast-busting annual financials.

Annual results to March from the support services group, delivering training to more than 15,000 people every year and focusing its efforts on school leavers and adult learners, showed an 86% sales surge to £58.4m, reflecting higher student numbers and better retention rates. Pre-tax profits soared higher, from £7.6m to £11.7m.

‘Even after upgrades’, enthused chairman Hugh Aldous, ‘we have again finished the year ahead of market expectations’, with the business, which has made a timely recent shift towards apprenticeships, having 'caught the tide of both the changing government objectives on skills and training and the needs of the key sectors we serve’.

Alongside the numbers, the Melorio board said it was recommending a cash bid from education and information giant Pearson pitched at 225p, a 31% premium to the price before offer talks were flagged up and valuing the group at £99.3m.

Broker WH Ireland sees the bid as significantly undervaluing Melorio, having upgraded its forecasts and target price to 350p following the strong results. Indeed, based on its new estimates for this year – sales of £74m, significant growth in adjusted pre-tax profits from £13.7m to £22.4m and earnings of 38.6p – the shares, recommended by Growth Company Investor at 152.5p in 2009, trade on a modest prospective p/e of 5.7.

However, while the present valuation remains undemanding and Melorio’s prospects as a stand-alone are unquestionably strong given government commitments to training and development, investors who bought on our advice would do well to accept the offer, thereby realising a tidy 50% return on their investment.