Merrion Capital is very positive about the prospects for interactive education company Riverdeep. The company is operating in an industry still in its infancy, where players who have an advantage in terms of content will see this gradually eroded within 18 months.
Nonetheless, Merrion points to the take-off in demand for this service. It believes Riverdeep can implement strategies to maintain its competitive edge and is recommending the shares as a buy at current levels of around $23 (#27).
"We take comfort from the fact that Riverdeep acknowledges that new barriers to entry are required in the long-term, according to Merrion. It says the next phase of development will see it introduce integrated solutions for the US kindergarten to 12th grade [equivalent to sixth year in secondary school] market, which will incorporate assessment, student management and school administration functions among others."
Merrion forecasts that Riverdeep's revenues will grow well above industry rates for several years. It expects the company to be cash-flow positive in 15 to 18 months.
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