ONE on One Educational Services Limited’s $358.25-million initial public offering (IPO) has garnered positive recommendations from the brokerage community as the equity offer opened this morning at 9 am.

The award-winning educational technology company will see $87 million worth of convertible promissory notes from PanJam Investments and Sagicor Life Jamaica converted to ordinary shares, while $271.25 million is raised as fresh equity capital from teachers, employees, key strategic partners and the general public. Except for the convertible loan pool, all other pools are priced at $1.

The offer is set to close next Friday with the company set to use the proceeds to invest in next generation learning content for new and existing markets, investing in adaptive learning technology using machine learning and artificial intelligence plus increase its working capital reserves.

JN Fund Managers Limited had the highest estimated fair value of $1.83 among the broker reports with an implied discount of 45.60 per cent for investors who buy into the IPO. This gained a ‘participate’ recommendation to its clients with a medium to high risk rating for the undervalued shares. Some of the investment positives listed in the report included the high growth potential, strong value proposition, forecasted low debt-platform and high potential for short-term gain. This is negated by the investment negated by keyman risk, the novel coronavirus and the economy plus price risk of the stock when trading.

“One on One has evolved into an efficient technology firm using its diversified platform to improve the educational landscape in Jamaica and the region. The outlook for the company is positive and we expect One on One to continue its current growth trajectory. This IPO is expected to strengthen the company and reduce its debt level, allowing it to invest in next generation learning content and adaptive learning technology thus combining modern technology with its core competence of delivering personalised learning to its learners,” the JN report outlined.

Victoria Mutual Wealth Management Limited’s (VMWM’s) report had a price target of $1.67 and recommended its clients participate in the offer. The stock is recommended as suitable for growth investors with a moderate risk appetite as the associated risks are skewed to the upside. This comes as the company has a trailing price to earnings (P/E) ratio of 20.49 times and return on equity of 98.6 per cent.

Some of the positives for the company’s outlook includes the re-entry into the business-to-consumer space, an anticipated increase in market share in learning management system (LMS) space and growth in white-label solutions. Investment positives for the offer include the 10-year tax relief on listing, diversification in revenues and improving economic conditions. The investment negatives included the low barriers to entry for the e-learning space, the high amount of receivables from government contracts and no time restriction on convertible debt holders ability to offload their shares.

“Over the years technology has been shaping and shifting all aspects of our lives; from the way we communicate to the way we educate ourselves. More recently, the digital transformation of the educational system across all levels has allowed for the incorporation of the new e-learning ecosystem. The business is now poised for growth and is likely to improve on its financial performance as it realises growth opportunities within Jamaica and the wider Caribbean,” the VMWM report stated.

GK Capital Management Limited’s report had a price range of $0.97 on the low end from a discounted cash flow model and a high of $1.43 based on the P/E ratio comparative market approach. The recommendation was for investors with a moderate to aggressive investment profiles to could consider participating in the IPO. Some of the positives for the investment rationale included the improving balance sheet, robust growth in revenues and increased demand for digital learning. Some of the negatives included high operating costs, susceptibility to cyber-attacks and intellectual property infringements by replication.

“Within this context, as the world continues its progression towards digitisation, the future growth potential for One on One Educational Services can be viewed as significant. One on One intends to position itself as a key player in the edtech industry, growing its revenue outturn through the expansion of its business to customer products. Also, with One on One’s management team placing greater focus on negotiating long-term contracts, the company should record greater stabilization in the revenues generated,” the GK report stated.

Proven Wealth Limited (PWL) had the lowest target price among the brokers at $1.24, but still gave it a participate recommendation for investors with a long-term horizon and above average risk tolerance. The company’s P/E ratio of 20.5 times is below the Junior Market’s industry average (excluding outliers) of 21.4 times. The investment positives include the diverse and experienced leadership at the board level, improving financial performance in terms of profit margins and ownership of software and technology as well as content which allows quality control and product differentiation. Some negatives included the top 10 concentration for post listing trading, the high receivables accounts for some major contracts and fairly low retention rate for new contracts and recurring customers.

“We have a favourable outlook for One on One, supported by high growth prospects for the Edtech industry both locally and abroad. The company currently has prospective business contracts with relatively long tenures, coupled with new products in the pipeline that will benefit the company’s top line growth over the near term. Revenue growth is expected to be mainly attributable to further market expansion into the Caribbean and Latin American regions as well as through acquiring and retaining current contracts and recurring users,” the PWL report added.

The fair value targets for Sagicor Investments Jamaica Limited (SIJL) and JMMB Securities Limited was $1.34 and $1.53, respectively. SIJL is the lead broker and arranger for the offer while JMMB is a selling agent to the offer. SIJL has a buy recommendation while JMMB has an overweight/buy recommendation. JMMB’s upper price target is $1.84 and a lower price target of $1.22. The JMMB recommendation means that clients should increase their asset exposure up to 10 per cent of their portfolio held with the broker.

One on One generates more than 70 per cent of its revenues in United States dollars from seven countries and 95 per cent of revenues from its business-to-business line. The company’s trailing twelve month (TTM) revenue of $306.03 million and TTM net profit of $92.73 million. It projects to earn $140 million in revenue and $53.34 million in net profit for the fourth quarter ending this month. The company currently has total assets of $326.90 million and shareholders equity of $100.34 million. It also projects to earn $662.24 million by its 2025 financial year with net profit of $180.81 million.