Schrole Group Ltd: Record New Connect Sales Driving a Strong Finish to 2021
Schrole Group Ltd
Record new Connect sales driving a strong finish to 2021
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 provided a trading update ahead of the close of its Share Purchase Plan on December 17. SCL noted that it had experienced strong year-on-year growth of sales to international schools with invoiced new sales of US$0.734m from January to November, an increase of 9% on CY20 and 13% over CY19. New Connect sales invoiced in November increased 32% over the same month in 2020 to US$0.104m. Our forecast for new international school sales for CY21 is US$0.799m so the company is well on track to meet our expectations. Schrole Connect has delivered record new licence sales in the year to November 30, with almost 110 new licences sold in the 11 months to November 30, well ahead of the ~85 new licences sold in the 12 months to December 31, 2020. The company also noted that licence renewals for the first 11 months of 2021 were at 90%, a record level. This is above our forecasted renewal rate of 83% for CY21. SCL also noted that Schrole Events was driving new customer sales with the four events held since its October 2021 launch contributing 18 new customers to Schrole Connect. Schrole has scheduled an additional five recruitment events through to April 2022. We maintain our base-case valuation of $0.031/share or $51.8m.
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.
Tracking to our CY21 forecasts
Schrole Group has provided a trading update for the 11 months to November 30 with new sales growth looking to be in line with our forecast for the full year and licence renewals ahead of our expectations. The company noted that its strategy of cross-selling was bearing fruit with 18 new Connect customers coming out of the four Schrole Events’ online recruitment events held in October and November. SCL also noted that its Schrole Engage product was on track for release in Q1 2022, completing the full Schrole HR SaaS suite.
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. 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: Record New Connect Sales Driving a Strong Finish to 202117 Dec 2021