Schrole Group Ltd: Benefitting from Recruitment Tailwinds, Capital Raised
Schrole Group Ltd
Benefitting from recruitment tailwinds, capital raised
Schrole Group Limited (ASX:SCL) is an Australian software company focused on providing technology solutions to the international education and training sector. Schrole HR has a suite of five established and emerging human resources Software-as-a-Service (SaaS) offerings including its core product, Schrole Connect, a SaaS-based staff recruitment platform. The company has announced it has received firm commitments for a $2.5m share placement at $0.01/share to institutional and sophisticated investors and will additionally raise up to $1.5m via a Share Purchase Plan (SPP). Schrole Group also noted, in a presentation to the Coffee Microcaps forum, that the integration of Schrole Connect on the Faria platform was largely complete and that a joint marketing effort to Faria’s 1,200+ international schools could commence as soon as December. The company also highlighted that it was benefitting from significantly increased employment activity with record numbers of unique visitors tapping into Schrole Events looking for new positions. Managing Director Rob Graham highlighted that more than 50,000 unique visitors had visited the platform in one week recently, which was 300% higher than the best-ever week previously. This level of interest has the potential to convert into both subscriptions by candidate teachers and SaaS sales with schools. We have incorporated the recently completed, oversubscribed $2.5m share placement into our forecasts with the effect that our base-case valuation has increased to $51.8m or $0.031/share (previously $49.3m or $0.035/share).
Business model
Schrole generates revenue from the sale of subscription licenses to its proprietary software modules, which are designed to provide a sophisticated recruitment and training platform for highly skilled staff within the international schools segment. SCL develops its software in- house, which enables more efficient development of the platform and new features while allowing for third-party integrations. In combination with SCL’s strategy of active client engagement, and the conservative nature of decision-making processes inherent within the international schools segment (SCL’s core customer base), the business has a clear competitive edge and highly defensible market position. We believe SCL has a considerable revenue growth opportunity within and across existing clients, driven by management’s targeted expansion in contract value per customer from ~$10kpa at present to ~$30kpa as more modules are added over the next two years. At the same time, earnings quality is expected to improve as the termination of the ISS relationship results in expanded operating margins and recurring SaaS licence revenues with its share of total revenues trending higher.
Capital raised
Schrole Group has raised $2.5m in an oversubscribed placement at $0.01/share, which was an 11.1% premium to the 15-day volume weighted average price (VWAP) to 18-Nov of $0.009/share. The company will raise up to $1.5m additionally through a SPP. We have included the share placement in our forecasts, with the effect of reducing our per-share valuation by 11%.
Valuation of $51.8m or $0.031/share
We use the DCF methodology to value SCL (WACC 15.0%, terminal growth rate 2.2%) which derives an equity valuation of $51.8m or $0.031/share following the share placement (previously $49.3m or $0.35/share). As we highlighted in our 5-Oct Initiation Report, Putting Smarts into Education HR, at its current share price, Schrole Group is trading at a significant discount to two groups of observed SaaS peers.
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- Schrole Group Ltd: Benefitting from Recruitment Tailwinds, Capital Raised26 Nov 2021