One interesting business : its VET-in-school business

RCL is another education related company, which has been forgotten by the market.

The stock has been more or less flat on 1 year, while the company is showing a good profile of substantial growth (+ 13 % for H1 25) and significant operating leverage (+ 1 % for operating costs), in line with FY 24 (+ 15 % for revenues and - 6 % for operating expenses).
This is also in line with its target* to grow the revenues by around 15 %, with a fixed cost basis.
A 3rd element is driving their results : the large increase of their gross margin (+3.5 ppt during H1 25) due to the growth of their high margin business (VET-in-schools : + 32 % for H1 25 revenues, while this business has a gross margin of over 90 %** vs 55 % for the group).

RCL has 3 businesses :
- its e-learning business : distribution on line of its own digital content, as well as the content of other publishers, for Australian and international schools,
- VET-in-schools : vocational training for Australian High Schools,
- industry training (Southern Solutions) : vocational training for Australian industry (in particular for childcare).

Vocational training for schools is the most interesting business, as it has the highest top line growth and the highest gross margin.
VET-in-schools represented 42 % of revenues during H1 25.
The 2 other divisions struggle to grow revenues (+ 1 % for ebook and + 2 % for industry training for H1 25), while they are also lower margin (gross margin of respectively 15-23 % for ebooks and 40-60 % for industry training).

The group will soon publish its Q3 results, so we will have a better view of its H2.
So far, the company has given a cautious guidance for its industry training business (12 % of revenues), but remained confident for the 2 other businesses.
If H2 trends are in line with H1, we can expect an underlying EBITDA 25 of 1.2 m$ (vs 0.36 m$ in FY 24) and a free cash flow of around 0.5 m$ (free cash flow yield of 4 %).

For FY 26, taking similar assumptions (for revenue and operating expenses growth), we can expect a free cash flow of around 1.3 m$ (10.6 % free cash flow yield).
In order to be cautious, I kept a stable gross margin vs FY 25 (after + 350 bp expected in FY 25), but gross margin will probably further increase if the revenues are still driven by the vocational training for schools.


* for several years.
** increase from over 85 % in FY 24.