RM (RM.) has come a long way since it started supplying electrical parts to hobbyists in the early 1970s and the company could be about to take another major leap forward. Known as Research Machines, it soon began building computers for schools and this year expects to turn over almost £260m. But there's little money in some of its core activities these days and the company has decided to radically restructure its operations away from making PCs to supplying higher-margin software and services to the UK education sector. While this will shrink sales, it is expected earnings will turn around sharply following a 2014 trough, and forecast net cash worth almost half the company's market capitalisation easily underpins the investment case.
- Restructuring programme under way
- Drive towards higher-margin software products
- Forecast net cash worth half the business
- May return cash to shareholders
- Execution risk
- Year of rebuilding ahead
After much soul-searching, RM last month confirmed its decision to exit the sale of personal computing devices, part of the core education technology (ET) division. There was little prospect of finding a buyer for the struggling business and a protracted period of loss-making looked around the corner, so the move makes a lot of sense. Previous management had already sold loss-making operations and repaid debt, but the coalition government's winding down of Labour's Building Schools for the Future (BSF) programme meant RM had already pencilled in about £40m of lost revenue.