SMALL CAP SERIES – 3P Learning Limited
Next in our small cap series – 3P Learning Limited (ASX: 3PL). 3P Learning had its IPO in the second half of 2014 at $2.50 per share but notably hasn’t displayed a great deal of performance since.
3P Learning offers cloud based software educational services for kindergarten, primary and secondary school students in Australia, the United Kingdom and the United States (the latter geography being a more recent endeavour). The firm has a portfolio of products comprising a standard range of subjects, namely mathematics (in its ‘Mathletics’ product), reading and writing skills (Reading Eggs & Spellodrome) and science (IntoScience).
Upon our review, the $2.50 IPO price required the investors to get comfortable with a set of assumptions. Firstly, the firm’s success in the United Kingdom and Australia would need to be maintained and secondly that the firms’ expansion into the United States would achieve similar levels of success.
In order to answer former, we consider the firm’s ‘moat’ i.e. what features inherent in the company will prevent competitors from taking its market share. It’s difficult to argue that the firm has a low cost advantage in providing software. Further, there doesn’t seem to be solid evidence for a network effect which arises naturally for some software/web based firms (such as Facebook Inc (NASDAQ: FB)). Overall, whether the firm has a moat is up for debate.
In terms of the firm’s expansion into the United States, we consider whether the firm has a competitive advantage over its peers which could justify a substantial new windfall of market share. Again on this point, it appears difficult to make a strong case. There are many providers in the world offering online educational platforms – some offering their services for free (Khan Academy and others come to mind). Whether one product is superior to another is likely a matter of opinion rather than something tangible that can be analysed.
On the whole, it’s clear that should the firm’s product gain substantially higher levels of market traction internationally that its investors will do well. However given that it’s quite difficult to have confidence in the fundamental drivers of value (competitive advantage and a sustainable economic moat), it’s an investment we’re content to pass on for the time being.
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Ross Noden
:
Good morning,
I was just wondering about 3PL. is it still a good investment and are Montgomery still active in this stock.
thanks, Ross…
Roger Montgomery
:
Hi Ross,
We sold a very, very long time ago.