Training group pulls itself together

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The Independent Online
Karl Chapman, chief executive of quoted training outfit CRT, believes that changing technology is going to transform the training and education market over the next few years, leading to the build-up of some very substantial businesses in a very fragmented sector. By way of a parallel, he cites the example of food retailing, which has gone from corner shop to giant superstore over the last 10 to 20 years. He expects something similar to happen in training with CRT which, at 159p, is well placed to become a major player.

The key to the group's potential lies in its complementary mix of businesses. Through subsidiaries, Pitman and Link, the group provides training in computers and a wide mix of other vocations via their nationwide branch networks. In another flourishing business CRT provides computer software personnel on contract to a long list of blue-chip customers. Last, but not necessarily least, comes a multimedia business which is developing a range of CD-based training packages such as Easy Tutor - Learn Windows 95 for use both in CRT's classes and for retail sale.

Until recently, the group's performance has been overshadowed by an acquisition - one out of seven - that went wrong. The culprit, a management consultancy called Doctus, flourished in the run-up to privatisation by helping to knock former state-owned businesses into shape to function in a less protected world. But as that business tailed away, profits turned to losses and CRT ended up selling the firm to its management.

CRT's profits have been on something of a roller coaster in the 1990s. After a peak pounds 6.2m in the year to 30 April 1992 they fell to near break- even after exceptional items in 1994 before rebounding to pounds 6m in the last- reported full year. Further progress has been made in the half-year to 31 October, 1995 though a combination of factors - start-up costs, the expansion of Link and the multimedia division and dilution from a rights issue - kept earnings per share growth down to around 20 per cent compared with a 65 per cent rise in sales.

CRT's business is heavily weighted to the second half which, allied to the strong growth trend, leaves analysts looking for a record pounds 8m profit for the full year with earnings per share of 8.0p.

That implies a prospective p/e of just over 20. That may sound expensive but there is great momentum in the group's growth that should carry through in future years.

Higher than budgeted demand for vocational training found the group needing to increase capacity quickly, which has temporarily lowered profits from that division. The second half is expected to have shown a return to profits growth as revenue flow offset the higher fixed costs incurred by gearing up the branch network.

The vocational arm, Link, now operates from more than 100 branches nationwide while Pitman increased branch numbers from 57 to 69 over the first half. It differs from Link in being a largely franchised operation, making its money from royalties and the supply of course materials. Sales rose by 23 per cent year on year.

The lower-margin recruitment divisions are also growing strongly. Mr Chapman says that in broad terms recruitment accounts for 60 per cent of sales and 40 per cent of profits with the figures reversed for the training side. In the half-year the recruitment division increased operating profits by 60 per cent to pounds 1.54m on sales up 83 per cent to pounds 33.8m, reflecting a 25 per cent increase in the number of contract and temporary staff on placement to 2,300 and a 39 per cent increase in permanent placements.

In multimedia, the group is building up its range of CD- Roms to teach people computer skills. Development and marketing costs are around pounds 400,000 per package so, inevitably, the division will make losses until it builds up sales and a decent catalogue list. CRT is itself a big customer through its Pitman and Link training operations. Sales have soared from pounds 0.6m in l994-95 to an expected pounds 2m and the division is predicted to break even in the year just ended. By the end of 1996 there should be 14 titles and the makings of a very profitable business.

That, in turn, could help the group to beat analysts' expectations of profits of pounds 9.5m and earnings per share of 9.5p for the coming year. The prospects make the shares a buy.