The secret of success in property, according to the popular saying, is ‘location, location, location’. And the mantra for stock market investors right now could have a similar ring – ‘education, education, education’. This small and rarely noted sector of the stock market is delivering some great returns just now, and for this we can offer just a small vote of thanks to Gordon Brown.
Education is Gordon’s answer to the unemployment crisis. How many times have we heard him say that the unemployed will be sent on training courses to “help them back into work”? So, lots of young people go off to college. They sign up for courses in IT, cookery, hairdressing and physiotherapy… preparing themselves for jobs that seem scarcely more likely to exist when they graduate in two or three years’ time than they do today. No matter. Politics is all about offering palliatives today and postponing the grim day of reckoning until tomorrow, so we should expect no more.
I am not so sure that we can just educate our way out of our economic difficulties. But while the thirst for knowledge – or perhaps just the alternative of the dole queue – is swelling the number of fulltime students, we can at least try to make some money from it. I’ve found some exciting companies in this sector but first, some background…
Great news for education providers
Setting my cynicism aside for a moment, Brown’s focus on unemployment might actually be what the country needs. In my regular conversations with leaders of small businesses, too often I hear them complain of the difficulty of attracting suitably qualified staff. Supposedly this is a country that knows it cannot compete with the low wage levels of overseas, but can beat the competition through sheer brain power. And yet when the chief executive of a small electronics business to whom I spoke last week wanted to recruit some IT boffins in order to push development of new products, it was not until he opened an office in Bangalore that he was able to recruit the necessary talent.
Both Barack Obama and Gordon Brown have suddenly latched onto science as a way out of our difficulties. Recovery from the recession, they tell us, will be led by the ‘industries of tomorrow’ – those that address energy shortages, climate change, and the environment. Innovation will be the key. Innovation that is not found in the sweat shops of Guangdong but in the glittering universities and colleges of America and the UK.
But, let’s face it… we have long had a superior education system. Go to many of the poorer countries of the world and you will find parents that crave a British education for their children. But this educational superiority does not necessarily lead to economic success, unless it is mixed with entrepreneurial zeal and encouraged by a government that does not tie up small businesses in red tape.
Making money out of the knowledge boom
Last week, a small company called BPP received a take-over approach. At 620p per share this was pitched some 260p above the prevailing share price. The bid came from Apollo Global, a US provider of education services that is backed by the giant Carlyle private equity group.
Clearly they can see something in BPP that has escaped UK investors and this can give us clues to other opportunities in the sector. BPP runs training courses, especially in finance and law.
Such qualifications are always sought after but perhaps even more so when jobs are hard to find. Students sign on for two or three years, allowing BPP to see a large part of its income in advance. Capital investment does not run far beyond some classrooms and overhead projector. No more teaching staff need be hired than is necessary.
It is a nice little earner – can we find others?
There have been a few companies that have served the education market over the years. There is RM Group (LSE:RM) that installs IT systems in schools and Findel (LSE:FDL) that supplies everything from desks to chalk. DRS (LSE:DRS) has devised automated marking systems. Pearson (LSE:PSON) is the giant of the sector and the supplier of many schools’ text books.
All-in-all, the education sector looks set to benefit from the government’s initiatives, and the focus on innovation. Make sure you get in on this fantastic play.
• This article was written by Tom Bulford and was first published in his twice-weekly email
The Penny Sleuth
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