Why Bell Potter think investors should buy Janison Education

ASX-listed smallcap Janison Education (ASX:JAN) continues to win stockbroker Bell Potter’s favour with a research note retaining a 70c price target and “buy” recommendation on Friday. 

As at 12:00PM AEDT on Friday 3 February 2023, the company’s share price sits at 58.5c, implying there could be as much as 21% in share price upside. 

Positive 1H23 trading update 

Analyst Olivia Hagglund based the recommendation on Janison’s latest 1H23 trading update released Thursday 2 February. 

The key highlights of that update run as follows: 

• Gross profit improvement of $14m up 12% vs. 1H22

• Assessments revenue growth up 46% vs. 1H22 

• “Significant cost reductions achieved to June 2022” 

• $6m cash-on-hand as at 31 December 2022 

The company guided to gross profits of $27-$28m for FY23. 

Mostly back to the old normal 

“We have updated our valuation of JAN for the earnings changes,” Hagglund wrote. 

“JAN also expect the return to pre pandemic schooling…to be [a] key driver.” 

“Assessments revenue growth” reflects payments made by schools to Janison which specialises in delivering digital exams.

Other key strengths 

Bell Potter Analyst Olivia Hagglund also highlighted three key points in the latest investment thesis for Janison. 

• Improved business model: “JAN has continued to transition away from developing bespoke assessment software for large enterprises and towards providing standardised Software-as-a-Service (SaaS) platforms.” SaaS contracts see providers receive recurring payments, as opposed to one-off licences.

• COVID-19 teaching changes to stay: “The short-term surge in ‘ed-tech’ spending brought on by COVID-19 is expected to re-calibrate to a longer term integration of technologies and adoption of a hybrid learning model.”

• Further room for margin growth: “The main drivers of JAN’s gross margin expansion [are] improvement in revenue mix, scale benefits and cost efficiencies. The cost to produce digital assessments are predominantly fixed in nature.” 

What about risks? 

Janison’s flagship contract is its PISA for Schools program which sees the Organisation for Economic Co-operation and Development (OECD) partnered with Janison. 

Through this program, Janison is active in the US, UK, and Australia. 

“If the OECD was to end the agreement or introduce other distributors…trajectory would be affected,” Hagglund wrote. 

Similarly, Janison’s tech offering is dependent on a partnership with Microsoft. Should that deal fall through, a material earnings downgrade would be effectively guaranteed. 

Hagglund also noted a return to lockdowns, or the rise of a competitor, also remain risks to the investment thesis. 

Janison Education's 1Y charts