SCL: Harley Grosser's Top Small-Cap Pick

Tackling the titans of recruitment

Harley Grosser, Capital H Management

My pick is Schrole Group (ASX:SCL), which provides an online recruitment platform to international schools – like a combination of Seek and LinkedIn.

US venture capital firm Andreeson Horowitz provides a good primer on what the firm does – particularly around the concept of “Deep Job Platforms”. And if it’s good enough for a16z, it’s good enough for us.

The company generates around US$4 million of annual recurring revenue each year and are approaching cash flow positive, which is solid enough for its US$25 million market cap, but we think they’re on the verge of a step-change in growth for two reasons:

1. Earlier this year it signed a company-making partnership with Faria Education, an 800lb gorilla in the international school market, and Faria acquired 20% of SCL. They’ve spent the months since building out the tech platform, but this will formally launch in 1H21.

Faria has 3,000 international schools, roughly 10-times that of SCL today, and from early next year Schrole’s product will provide the entire recruitment piece to Faria’s ManageBac platform and have direct access to those 3,000 schools, with Faria well-incentivised to drive uptake.

2. COVID was a shake-up for international schools and their legacy recruitment processes. The old way of doing things was face to face recruitment fairs and networking, made impossible by lockdowns. COVID forced everyone to try new methods online, reflected in SCL’s rising ACV (to US$8k), 49% increase in candidate and 115% increase in school registrations for iFairs (online recruitment networks) in November this year.

It is worth noting that SCL’s product makes sound economic sense to international schools. It pays for itself after roughly 3 hires (vs the recruitment fee model) and when SCL have run free trials in the past their conversion rates have been near 100%.

The tricky part has been getting schools to change their old habits. To try something new.

COVID was the catalyst that forced the industry to change and adopt new, entirely online recruitment processes.

As economies open up and international schools resume normality SCL is well positioned for growth as they approach the formal launch of their partnership with Faria.

Any acceleration in sales is likely to push the share price a lot higher and compared to peers, SCL is trading far too cheaply.

Source: https://www.livewiremarkets.com/wires/four-small-caps-offering-value-and-growth