Wey Education targets China windfall

Wey Education listed on PLUS market, now ISDX, as an investment vehicle in April 2011, but after making a long-awaited acquisition has today made the leap to AIM. It's bought the UK's only fully online interactive independent secondary school, and, while this is not a sexy sector, massive potential in China could be enough to turn investors on.

The school was started a decade ago as InterHigh by Paul and Jacquie Daniell. It originally catered for pupils who had been bullied at traditional secondary schools, or who suffered anxiety issues. Child actors and sports kids used it too. And it's become more mainstream as parents overcome fears about missing out on social interaction.

InterHigh has around 40 teachers for 516 students - 70% from the UK and the rest from Europe and East Africa - studying GCSE, AS and A levels.

In February, Wey paid the couple £776,217 - half in cash, the rest in Wey shares - with further cash and shares payable equal to 50% of the incremental growth in turnover of InterHigh for the periods ending 31 August 2015 and 31 August 2016.

Wey has raised £1.75 million from a share placing at 3.5p, valuing the company at £3.3 million. It will use the money to build the business, pay for the admission to AIM, and reduce debt.

I was initially sceptical about the idea that home schooling using Wey's resources could generate the kind of growth that would make this a huge success, and investible. But an interesting chat with chairman David Massie earlier this week certainly made me add Wey to the watch list.

Wey has a pool of qualified teachers, which it can grow rapidly to meet demand. The company covers most courses, too, and some local authorities go to Wey if they don’t have the resources to offer them itself.

Targeting China

But it was the mention of China that really piqued my interest. Massie says there's a similar company in China that prepares over 400,000 students for university every year. Wey has already done some sniffing around and knows its prices are ultra-competitive; perhaps too competitive, and it could charge much more.

"We only need a fraction of that market," says Massie. "We don’t know exactly how big the market is right now, but we only need a tiny fraction of the market to become big."

Wey charges an annual fee for students of about £2,340. "At 4,000 pupils we're £10 million business," says Massie. "We achieve a margin of about 20% and rising as don’t have overheads."

But Chinese parents are paying tens of thousands of pounds to send their kids to British universities. "We can charge a bit more and still be a bargain," says Massie.

Massie knows China well, but he'll need all is guile to develop the business there. He's confident, though.

"Our half-year is to 28 February and results will be announced a few months later. We would be very disappointed if didn’t have something to announce then."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.