Prime position for Epic
by Andrew Hore - The Business
August 12, 2002.
"The UK government is committed to spending billions on education
over the next three or four years, some of which will go to e-learning.
One beneficiary will be Epic, which develops online training courses
for government and large companies and has a consistent record of
making profits, with a cash-rich balance sheet and cheap shares.
Government spending is spread around a number of organisations,
the biggest being the Learning Skills Council with a budget of £7bn
(€11.2bn). There are also plans to put NHS expertise online, though
a budget has yet to be allocated.
Last year, half of Epic's turnover was from government-related organisations
and this connection will become increasingly important. The company
developed a software package called Prime, in collaboration with
the cabinet office, to train senior management in leadership and
strategic thinking.
Last year's turnover included £250,000 (€400,000) from Prime, which
this year will make a much greater contribution. Sales to companies
should also grow, but more slowly. Epic has a blue-chip client list,
including Royal Bank of Scotland, Barclays, Lloyds TSB, B&Q, Diageo,
and British Airways.
According to research by Enterprise Ireland, an Irish government
trade body, the European corporate e-learning market was worth £224m
(€358.4m) last year, and 50% of that was accounted for by the UK.
But the potential fragility of this corporate market was emphasised
by events since 11 September. Large companies stopped spending money
on e-learning and the market fell off a cliff. Epic had to put out
a profit warning and this was the reason for the 10% decline in
revenues from £8m (€12.8m) to £7.2m (€11.5m) in 2001, even though
government business increased.
Now corporate e-learning spending is returning to its previous growth
track. At the end of May, net cash stood at £9.45m (€15.1m), against
£6.63m (€10.6m) the year before. This year, analysts expect a pre-tax
profit of £1.4m (€2.24m). Cash generation will continue to be strong
- the business requires little capital expenditure.
At 65.5p, Epic has a market valuation of £16.7m (€26.7m) and trades
on less than 12 times earnings. Estimates for the current year are
conservative, so Epic could do even better.
Share buybacks are possible, given the cash pile, but management
is keen to keep a significant cash buffer. Buy."
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