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This is a hard piece to write. Firstly AIM listed training and software group ILX (LSE:ILX) has been a disastrous share tip for me from my days at t1ps.com – recommended at 72.5p in February 2004 the share price is now 10.75p. I can only apologise for that. My average gain per tip over 12 years and 241 tips would have been a bit better than 42.7% had I never met this company. Secondly the CEO (until today) Ken Scott is a nice guy and a friend of mine. As it happens the FD who resigned several months ago (Jon Pickles) is also a mate – he will officially leave the payroll at Christmas as will Ken.
Hmmm. To the credit of Ken and Jon when they joined this company it was a basket case. It is not now. It has not exactly flown but it has survived. Over the summer the group breached its banking covenants and had to raise £1.1 million at 10p. Ken subscribed for shares but most of the money came from Praxis, an entity controlled by Wayne Bos who became chairman last year and will act as interim CEO pro tem.
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I spoke to Bos about another matter a year or so ago and he is a sharp cookie. His vehicle now owns 29.9% of ILX and he calls the shots. Scott subscribed for shares in the September placing and two months later he is leaving with immediate effect to “pursue other projects.” You can read through that clearly. Scott has worked his socks off at ILX and is a good man and he will remain a friend but I write here from an investment perspective. What now for ILX?
The market cap is now £3.3 million. I reckon that post placing net debt is down to c£1.25 million and the group should be generating cash. Last year it had a 115% profits to cash conversion rate. Last year (to 31st March) normalised pre-tax profits fell from £1.54 million to £960,000 although sales were actually 5% ahead at £13.47 million. The company blamed the profits decline in increased investment in marketing and international infrastructure.
At the AGM held on 15th September Bos noted
“”Last year was a difficult year for ILX in terms of profitability but revenue growth has continued and ILX has maintained its market leading position.
ILX’s digital learning solutions and technology platform continue to be improved and provide a highly efficient and cost effective solution. Demand for project and programme management training remains high.”
I would read into that since Bos is a man with a fairly tight grip on costs profitability should be at least maintained this year if not slightly improved. Any new team can always find a way to trim back PLC costs. As such the company trades on an Enterprise Value of c$4.5 million and if it matches last year’s EBITDA of £1.145 million the multiple is a fairly undemanding one of just under 4. If one assumes that ILX can start to pay down its debt over the next 12 months and that sales growth is maintained with a tight control of costs then the 2014 EV/EBITDA multiple is plausibly little over 2.
I certainly would not sell at these levels and this is potentially a brave recovery buy. But I need to chat at length to both Bos and Scott before being bolder.
