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Date : 22/10/2021

Janison Education Group

ASX :

JAN

Market Cap : $218.65 Million

Buy

52 Week Range : $0.34 - $1.16

Share Price : $1.03

Top quality firm that is capturing global markets with a supporting industry tailwind. We recommend a "Buy".

Company Analysis

Janison Education Group (ASX: JAN) was founded by a teacher who had a vision to enable equitable access to education for all, no matter their location or circumstances. We recommended Janison back in April 2021 and the company has had a fantastic few months. The share price has risen over 37% and the company has gotten stronger fundamentally during this time. Janison is one of the top quality companies in the Education sector and is a market leader in the digital assessment space. They have a streamlined business model with significant competitive advantages that are pushing the company to greater heights.

There have been quite a few key announcements since our last report on Janison. The firm has raised equity, delivered a fantastic FY21 performance, made acquisitions, gained further accreditations, etc. For those of you who missed our initial coverage, here’s a quick refresher before we dwell deeper into Janison’s progress since April.

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Source: Tradingview.com

Janison delivers high-stakes, high-scale, online assessments to millions of students in more than 120 countries, for organisations including the Australian federal and state governments, Chartered Accountants ANZ, British Council, the University of London, the Organisation for Economic Co-operation and Development (OECD), and the Singaporean government. Janison’s business comprises:

Products – world-class schools’ assessment products including ICAS, REACH, JET, SCOUT and PISA for Schools, developed either in-house by world-leading test and item developers or licensed from global partners such as the OECD.

Platform – a market-leading full-suite assessment platform for high-stakes and high-scale online exams with the capability to author, test, mark and provide insightful analysis. The platform is used by millions of students globally across 120 countries in schools and professional accreditation bodies such as the Chartered Accountants ANZ. The platform includes remote proctoring capability allowing educators to deliver exams in a remote setting with the confidence and exam integrity required for high-stakes assessments.

Professional Services – Janison provides world-class professional services to assist clients in onboarding their assessments and students on to the Janison assessment platform. Janison also offers a range of assessment services including content and test development, exam management, and event delivery support for customers globally.

A global company in the making

Janison was responsible for providing over 6.5 million digital assessments in FY21, 200,000 remote proctored exams, and catered to an overall 4.5 million + students globally. Thus, Janison operates in a global market for digital assessments. The addressable market includes schools, governments, accreditation bodies and higher education institutions. Spending on EdTech and digital expenditure is expected to grow by 2.5x between 2019 and 2025 to reach a total market size of $550 billion.

This represents approximately 5.5% of the total spend on education globally. Schools, universities, and colleges are still at the early stages of their digital adoption journey. As a result of COVID-19, the estimated market size for EdTech has expanded by a further $85 billion in the past year. The short-term increase in spending through COVID is expected to remain in the long term as education departments uplift infrastructure capability to provide the devices and networking standards required for digital adoption. Janison’s addressable marketplace consists of two distinct channels:

  • Direct to consumer – either student or parent
  • B2B/B2G – Schools, professional accreditation bodies, state & national education departments globally.

Janison specialises in high-stakes high-volume digital assessment platforms for which there are few competitors able to offer comparable levels of scale, reliability, and exam integrity with demonstrated success with governments and esteemed education institutions. Janison’s assessment products include ICAS which has been celebrating academic performance for 40 years this year, and PISA for Schools which is developed and backed by the OECD and being rolled out exclusively on the Janison platform around the globe.

Australia & New Zealand – This is Janison’s largest market currently. About 77% of their revenues are generated here at home and they have a market dominating position. During FY21, Janison saw substantial growth in revenue from the delivery of ICAS and other online assessment platform clients, despite the impact of COVID-19 on traditional in-person exam delivery services.

Asia – About 10% of Janison’s revenues comes from the rest of Asia. Expansion into South East Asian countries has been going very quickly and Janison’s products and services have been witnessing a healthy growth rate. In FY21, Janison delivered its flagship ICAS assessment to schools across a number of Asian countries including Malaysia, Singapore, Hong Kong, and the Philippines. The global application of this assessment and its digital delivery enables a vast addressable market for this product. The densely populated Southeast Asian countries provide a considerably high addressable market for Janison.

EMEA – Similar to Asia, about 10% of Janison’s revenues originated from this region. Janison has expanded into the EMEA region through a number of new European customers and expansion of its PISA for Schools digital assessment. University of London is one of Janison’s largest customers in the region and the firm continues to grow its presence.

Americas – Janison began delivering online assessments in the US in 2020 when it became accredited by the OECD as the National Service Provider of PISA for Schools in the region. It is also the exclusive platform provider of the assessment in Brazil. In our opinion, this is the most lucrative market. Accreditation in the US is a massive milestone that Janison received and given the quality of the addressable market in the USA, this is the region to keep an eye on in the coming years.

In FY21 all geographies expanded with the exception of America which remained relatively flat as a result of the impact experienced by the pandemic with forced school closures across the country. Whilst most regions, and the Group as a whole, grew total operating revenue, Janison increased the proportion of revenue originating from outside Australia and New Zealand in FY21. Expansion through European customers such as the University of London, SCIO in the Czech Republic and the PISA for Schools partnership with the OECD assisted in growing Janison’s share of revenue from EMEA and Asia. A portion of capital raise in June and July 2021 will fund further expansion in these regions.

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Source: Janison

Company Updates

Janison has hit quite a few noteworthy milestones during FY21. As of the end of June 2021, Janison has enrolled 15 countries for its PISA program. Janison kicks off the process as an International Platform Provider where their role is to provide the assessment software. Following on, Janison then seeks to enrol partners and become the National Service Provider where they assume full responsibility for in-country roll-out. Their relationship with the OECD is critical for this and as things stand, it has been extremely fruitful.

Back in April, Janison surpassed 200 Australian schools on the PISA for Schools program. In the first six weeks of availability in the Australian market, Janison has signed agreements to roll out the OECD’s PISA for Schools assessment to nearly 10% of all Australian secondary schools – with educators instantly recognising the benefits to teaching and learning.

Schools which have signed up already are a mix of independent and government across several states in Australia, and at a cost of $7,000 per school, Janison expects to receive a minimum of $1.4m p.a. plus GST.

During May 2021, Janison announced that it has been accredited by the Organisation for Economic Cooperation and Development (OECD) as the sole provider for the PISA for Schools assessment in the UK, encompassing the four countries – England, Scotland, Wales, and Northern Ireland. This expands Janison’s coverage as the National Service Provider to six countries for the end-to-end delivery of PISA-for-Schools – the gold standard in measurement of student learning, further strengthening Janison’s market leading position in schools’ assessments.

Why is this important? It is because of the potential the UK market has. We already know how quickly and substantially Janison has grown in Australia. In the academic year 2019/2020 there were approximately 7,200 secondary schools in the UK – representing a market 2.6x the size of Australia. The total addressable market in the UK is approximately $50m p.a. (7,200 schools @ A$7k each).

The UK government schools each receive approximately A$3.3m (GBP1.8m) in funding on average from the national education budget of A$9bn (2019/20), and, like other countries, the UK plans to increase spending on education in the coming years. In the 2020-21 academic year, many schools put spending on hold due to COVID, but the significant disruption to classroom teaching and learning now requires schools to evaluate the impact of this on students – a need which can be filled with the PISA for Schools assessment and the comprehensive reporting it provides including the new Global Crises Module.

As at the end of FY21, the table below is how the PISA enrolment looked for Janison. There is thus substantial growth in their pipeline.

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Source: Janison

Capital Raised – Well funded for growth

Janison provides a very good investment case. It has backed it up with solid operations and a positive FY21 financial performance. In July 2021, Janison completed a heavily oversubscribed placement and share purchase plan (SPP) raising $18 million before fees.

$15 million was raised via an institutional placement, and then originally planned $1 million SPP was extended to $3 million given the significant interest that Janison received. The funds were raised at $0.82 a share.

This new capital provides Janison with the ability to accelerate its growth objectives and provide the financial flexibility to pursue strategic investments including the ongoing innovation to retain a market-leading position for high-scale, high-stakes digital assessments. In FY21 and continuing into FY22, Janison has mentioned that they will also invest in enhancing their security features to ensure customers data is safeguarded and deliver highly secure digital exams.

FY2022 off to a great start

Janison was accredited as the National Service Provider (NSP) in the United States in late 2019 by the OECD. Since this time, progress to onboard schools has been hampered by the impact of COVID-19 which caused rolling school closures across the country in 2020. Back in August, Janison announced that the OECD renewed their US license agreement until 2024. Strong market tailwinds exist in the US to support the take-up of PISA for Schools over the next three years; schools emerging from lockdown have a heightened need to assess students’ learning loss during COVID-19 and its impact on their social and emotional well-being.

In preparation for the renewal and to capitalise on the significant opportunity, Janison has developed comprehensive plans to capture a greater market share of secondary schools in the US. Through partners, consultants, and local industry experts, Janison has begun to engage with schools, school systems and districts to secure local agreements for the PISA for Schools assessment, delivered on the Janison Insights platform.

Working directly with school districts and the charter school network, Janison has secured more than 25 schools in our first month of this new school year. At a fixed price of A$7,000 per school this will generate more than $175,000 for Janison in FY22 with future years’ revenue guaranteed from many of these schools signing on for five-year agreements.

The US Federal Government has provided over $200bn (approximately $4,000 per student) in support packages for schools since the beginning of the pandemic. The PISA for Schools assessment aligns with several key elements of how funding may be used, including assessing and addressing learning loss, supporting diverse students, evaluating social, emotional, and mental health, and teacher professional development. The Janison team and its partners, consultants and US based experts are now focused on recruiting schools to take the PISA for Schools test in the coming school year (starting in August/September) and are targeting 100-200 school registrations in the first year of this renewal.

The USA will be the key growth market. But this is not to say that Janison is not growing elsewhere. We have already outlined the potential of the UK and European markets.

NSW Department of Education partnership opens up additional revenue opportunity

Janison announced it will be supporting NSW public schools this year by providing its digital assessment platform to power ‘Check-In’ assessments to a larger cohort of NSW students than last year. In October 2020 the assessment was initially available for school years 3, 5 and 9 but after such a successful event and positive feedback from teachers and the teachers’ union, it was expanded to years 4, 6 and 8 in April 2021. Now the test has been made available to all year groups 3 to 9.

The assessment was co-developed in partnership with the NSW Department of Education in September 2020 and delivered on Janison’s standardised assessment platform for the first time last year. Janison is expected to receive minimum revenue of approximately $500k for the October to December 2021 sitting window (1H22) but based on the high take-up rates experienced last year it is likely revenues could be in the range of 2-3 times this amount, with a repeat sitting window likely between April and July 2022 (2H22).

Quality Assessment Tasks Acquisition

Janison has also made an acquisition in the booming M&A market that we are witnessing. Quality Assessment Tasks is an Australian market leader in the development of school assessments for Year 11 and 12 subjects. It is headquartered in Victoria and has been operating for over 20 years. The business is relatively small in size, comprising four FTEs and a contractor network of 250 content developers and reviewers with revenues of $1 million in FY21, robust margins, and cash generating.

QATs has approximately a 50% national market share of the roughly 2,800 secondary schools across Australia with an 80% share in NSW, 90% in Victoria and 40% in QLD & SA, the latter being relatively newer markets.

Janison has agreed to pay $2 million in total consideration of which $1.25 million will be paid in cash upfront upon completion and a $0.75 million variable earn out payment in cash which will be deferred for one year and contingent upon achieving an agreed FY22 revenue target. The total consideration will be funded from Janison’s cash balance and represents a recurring revenue multiple of 1.5x.

The acquisition of QATs increases Janison’s share of the Australian schools market and broadens Janison’s product portfolio by bringing on a suite of highly regarded and well-known assessments under a reputable brand name with a long history. QATs’ tests serve a segment of the schools’ assessment market which is least discretionary – testing for year 11 and 12 students. At a future point when high-school certificate exams (HSC, VCE, etc.) transition online from pen-and-paper, Janison will be well-placed to provide the software platform to deliver those exams nationally – with students having become accustomed to Janison’s test player environment – the same experience as NAPLAN Online, NSW Check-In, VALID, Best Start and the Australian Science Innovation exams – all running on the same Janison assessment platform.

This strategic acquisition thus plays into Janison’s long-term growth aspirations and blends in perfectly with the vision of the firm.

Board has been further Strengthened

Janison is a founder led business that has a very diverse and experienced board and management team. David Caspari, who has been CEO since April 2020 has been appointed as an executive director of Janison late last month. Caspari, who comes with significant experience at Managing Director, CEO and Board level across all key sectors in technology and services in Australia and global markets, has led Janison exceptionally well during the past year.

He has delivered substantial results at a critical and challenging time due to the pandemic. This led Janison to reward David Caspari with a seat at the Board.

Industry Analysis

The global EdTech market is valued at US$268 billion in 2021 and it continues to expand. The industry is boosted by significant government funding boosts (which we have already discussed), technology adoption, and exam integrity. Schools have rushed to deliver remote exams without appropriate integrity. Many high-stakes exams have been temporarily replaced with open book unsupervised exams which lack exam integrity. Janison’s assessment platform provides full identity validation and dishonest behaviour detection, and solves this critical problem.

PISA is the OECD’s Programme for International Student Assessment. PISA measures 15-year-olds’ ability to use their reading, mathematics and science knowledge and skills to meet real-life challenges. There are approximately 2,700 secondary and combined schools in Australia of which roughly 50% are existing Janison ICAS customers. Total addressable market size in Australia is approximately $19m (2,700 schools that pay $7,000 each in fee) of which the existing ICAS market share is approximately $10m.

In addition to Australia, Janison already operates across as a platform provider in 15 countries and the management is now working on adding more countries by way of extending their relationship with the OECD, who will ultimately have to accredit Janison. These contracts with other countries that are larger markets than Australia will prove to be the sparks that can ignite revenue growth in the industry and for Janison.

The UK for instance – represents a market 2.6x the size of Australia. The total addressable market in the UK is approximately $50m p.a.

The migration toward online tests and exams will expand in wake of the pandemic. Industry profitability is expected to increase over the next five years. Since this is a highly regulated industry, the position that Janison finds itself in with the regulators will go a long way in their growth story panning out as expected.

Additionally, the pandemic has brought about tailwinds to the EdTech industry. We are now seeing a significant change in consumer behaviour. The short-term need for digital infrastructure driven education will thus result in a long-term transition. The digital infrastructure is now playing catch up with the demand. Most schools are at the start of a long-term digital maturity journey. It’s worth noting that Schools represent 52% of the total education market and this is Janison’s primary target market.

To cater to this demand, we are now seeing a host of B2C EdTech business models popping up. When was the last time an online course was marketed to you? In our experience, we come across one everyday on either social media/television, etc. These EdTech business models are leveraging technology and coming out with Personalised, unbundled, social and gamified driven by mobility, big data, cloud and AI/ML platforms and products.

Janison is one of the leading companies in this niche space that will expand further. They have sure footing in a fast growing industry, and their relationship with the OECD gives them a significant competitive edge over competitors.

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Source: Janison

Investment Thesis

In FY21, Janison delivered its strongest year on record with 38% year-on-year growth in Group revenue, surpassing $30 million in total operating revenue for the first time in its history. This represents a compound annual growth rate (CAGR) of 20% for the past 4 years and the $30 million revenue is as per our forecast in our initial report on Janison.

In FY21 Janison delivered an improvement in Gross Profit from approximately $10.0 million in FY20 to $16.7 million, an increase of 66% on the prior financial year. Gross profit margin rose from 46% of revenue in FY20 to 55% in FY21. This represents the highest margin in Janison’s history and is a continued step closer to traditional SaaS margins as a result of an improved customer and product mix.

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Source: Janison

Expansion in Operating expenses in FY21 is driven by the acquisition of ICAS Assessments which brought an operational team of 32 heads, increased investment in sales and marketing to support the 3 growth drivers and elevate Janison brand awareness and hiring completion of the executive leadership team roles.

Over the past two years Janison has driven the business toward standard assessment platform clients and products and away from the legacy of developing bespoke assessment software for large strategic clients. This is a rather big change as it sets up the company to go from a low-margin business to a high margin business that is only usually associated with SaaS platforms.

The 3 Growth Drivers

The growth in revenue in FY21 was fuelled by successful execution on the following three strategic growth drivers.

PISA for Schools

In FY21, Janison entered eight new countries to reach a total of 15 countries now in an arrangement with Janison to deliver the PISA for Schools online assessment. The roll-out of this assessment will continue globally with the support of Janison’s partner, the OECD. Included in the eight new countries signed on during FY21 is Australia where Janison was able to secure over 200 schools to sit the assessment – representing a market penetration of 10% of all secondary schools. Also included in the new country list is China, where Janison is partnering with a non-profit organisation to roll out the assessment to a large addressable market.

ICAS

In June 2020, Janison acquired the Educational Assessments business from the University of New South Wales Global (UNSWG). The purchase included a suite of four highly regarded school assessment products including the very well-established competition, ICAS, which consists of 6 subjects and is sat across all school year groups from 2-12. For most of the past 40 years ICAS has been sat on average 1 million times each year in almost 15 countries in a paper-based exam format. Volumes fell in 2019 when UNSWG transitioned to a digital format exam delivery, and when COVID-19 surfaced in 2020 volumes fell even further.

Janison took ownership in June 2020 at the low point and has since set about improving the customer experience and marketing efforts to deliver an exceptional result in 1H21, surpassing management’s internal expectations and lifting customer satisfaction from -58 to+1 NPS post Janison’s first delivery of the exam. In FY21 Janison recorded over $6 million from the entire product suite and associated services.

Assessment Platform

The third strategic pillar of Janison’s growth strategy is to increase the number and size of platform clients running on the standardised Janison assessment platform. In FY21 Janison invested the capital raised in April 2020 to build a strong sales and account management team to support this growth and was successful in acquiring six new assessment platform clients which combined delivered over $1.2 million in new revenue and expanded share of wallet for its existing clients by 69% from approximately $8 million of revenue in FY20 to approximately $13.5 million revenue in FY21.

Bullish Outlook

FY22 began in a similar manner to FY21 with many schools closed and state-wide lockdowns in force. Janison successfully navigated these conditions last year to deliver a strong ICAS event and has taken learnings from FY21 to adapt this year’s sales, marketing, and event delivery approach to stabilise and even expand the ICAS competition this year. This will provide schools and students with greater flexibility to cope with the ongoing impact of COVID.

As we have stated earlier, the impact of the pandemic rather plays into Janison’s hands. The longer the schools are disrupted, the quicker will be the adoption of Janison’s products, not just here in Australia, but globally –particularly for the high stakes exams where integrity comes into the picture.

In FY22 Janison intends to continue the acquisition of standard assessment platform clients and further expand the number of schools and parents purchasing its school assessment products – ICAS and PISA for Schools, and in doing so continue to gain from the scale benefits arising from this improved customer and product mix.

Expansion of its school network in the USA, UK, and Asia is expected to be strong and deliver double digit growth. Here in Australia, since the market is significantly smaller than the other regions and coupled with the fact that Janison is the market leader means that growth rates will be modest.

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All three of Janison’s Growth Drivers are expected to continue their sales momentum and therefore boost revenue. The firm has outlined that they expect to see balanced 1H revenue with ICAS competition growth expected in Q2. Gross margins are expected to continue to expand as the benefits of the product volume and scalability will continue to remain.

Given all the updates we have had since our earlier report, our expectations have been bolstered. The signing up of more customers, and the additional revenue segment, and everything else outlined in the Company Updates section of this report underpin our forecasts. Therefore, we expect Janison to:

  • Grow its revenue by about 30% in FY22 and then continue to grow at an average of about 25% as the company is expected to make further headway in the USA and UK.
  • This growth by addition of more schools and customers will create a snowball effect for Janison’s products. Thus, with scalability comes increased profit margins. We have already seen solid growth in margins, and our estimates point towards a continuous increase in margins over the course of the next 3 years.

Thus, the estimates chart is very positive.

In FY21, Janison reported an EBITDA of $3 million – a 21% increase and ended the year with a Net Loss of $3.2 million. Product development continues to be of utmost importance for Janison, and rightly so. Improving their assessment platform’s functionality, design and security to maintain its market-leading position is key and in FY21 it accounted for $6 million – dragging on the EBITDA. We expect this trend to continue and based on our analysis, Janison will become profitable by FY23 – an exceptionally quick road to profitability, especially when compared to some of their technology peers.

Looking at Janison’s valuation multiples of FY2022 and FY2023 does not mean much. This is because the firm is transitioning when it comes to profitability. In FY21, Janison turned in a positive EBITDA for the first time. Their revenue has been growing at a steady 20% CAGR for the past few years – this reflects in a stable EV/Revenue multiple, and it thus gives us more clarity. As for the P/E, we expect Janison to turn a Net Profit in FY23 and then continue to operate profitably.

For a long-term play, looking at Janison’s valuation multiples of 32x P/E, 13.4x EV/EBITDA, and 3.5x EV/Revenue, it portrays extremely modest valuations. Especially for a firm that is expected to grow at an average of 25% over the course of this same time period. Not to mention the growth in gross margins from alongside. We are of the opinion that is an extremely good value for money when looked at relatively against some of the technology peers.

Our earlier report can be accessed by clicking here.

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Technical Analysis

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Trend

Janison has made a beautiful run since the last twelve-month period. The education group’s share prices appreciated by more than 170%. Year-to-date, JAN also significantly outperformed the benchmark with gains superior to 79%. Between last August and last September, we have spotted massive volume spikes around 83 cents per share with the number of shares exchanged reaching 3.8 million to 4.12 million. These enormous inflows of buyers led to JAN’s share prices growing by more than 21% in the last three-month period. So far, JAN perfectly holds its upward support trend line which is pretty bullish. This positive momentum is also confirmed by the RSI indicator’s recent rebound. However, we suggest our investors remain cautious. Hence, the RSI indicates that JAN may have reached its overbought territory. This could signify that a pullback to the trend line may occur shortly. This could be an opportunity to seize a position for a “buy” around the fair value of one dollar per share, which is also a psychological level.

Key price levels

The key level we recommend to monitor is the one dollar per share. This level may offer strong support as it is a psychological level. Moreover, the $1 level coincides with the 38.2% Fibonacci level from the recent swing high. The next support is the 96.5 cents which is the 50% retracement and the base of an ascending channel in development. JAN’s current market price offers an optimum trade with a risk/reward ratio of 1:2. We are forecasting a 22.5% growth, hence expect JAN to reach our price target of $1.25 per share within a 200-day time horizon.

Volume and momentum

Volume slightly increases since the last 200-day with the 20-day volume average up by 6.4%. The price action remains strongly bullish in the near term, evolving in a 5 cents range between $1.02 and $1.07 per share.

Trade consideration

  • Market participants might be interested to enter a key support level at $1.0.
  • Primary target price above $1.25 per share
  • Secondary target price at $1.5 per share
  • Consider reducing exposure below 95 cents per share
  • It is recommended exiting the trade below 90 cents per share

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Recommendation

Janison has been maturing extremely well in the EdTech space. The company has grown in stature and financially, Janison has been growing by a CAGR of 20% during the past 4 years. With the pandemic’s disruption to schools, Janison’s product has benefitted, and we are witnessing widespread adoption and growth across multiple markets. The firm has a huge competitive advantage with the OECD as their partner, and we are entering a period when Janison is investing to rapidly grow in the largest market – the USA. With strong industry tailwinds, a well-crafted business model that will be profitable very soon, we continue to recommend Janison as a “Buy” for long-term investors.

 

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