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RM learns the software ropes

RM has continued its painful transition from hardware to higher-margin software and services
July 7, 2015

RM (RM.) may not receive top marks for these half-year figures, but the schools supplier can claim extenuating circumstances: it decided to stop building and selling personal computers nearly two years ago in favour of providing higher-margin software and services. Together with tight education budgets, that precipitated a 5 per cent slump in adjusted operating profit to £6.9m.

IC TIP: Buy at 158p

The absence of legacy hardware sales and less government work sent revenue down 31 per cent at RM's core education division. But focusing on software helped widen its operating margin from 6.4 per cent to 7 per cent. It also inked a major agreement with a multi-academy trust, and its cloud-based management platform, RM integris, will be rolled out to virtually all state primary schools in Derbyshire.

Sales leapt 11 per cent at RM's resources segment, which supplies third-party learning materials, as it benefited from increased funding for early education, changes to curricula and an increase in primary school pupils. Meanwhile, the results division, which supplies digitised exam marking, testing and data analysis, signed an e-marking contract with testing giant AQA and benefited from buoyant demand in Poland and Slovenia.

Broker Numis Securities bumped up its forecasts and now expects EPS of 15.5p this financial year (from 15.4p in full-year 2014). Management hopes to return to top-line growth in full-year 2016.

RM (RM.)
ORD PRICE:158pMARKET VALUE:£131m
TOUCH:155-158p12-MONTH HIGH:172pLOW: 120p
DIVIDEND YIELD:2.7%PE RATIO:9
NET ASSET VALUE:9p*NET CASH:£43.1m

Half-year to 31 May Turnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201492.16.76.00.96
201579.89.29.11.20
% change-13+38+52+25

Ex-div: 13 Aug

Payment: 11 Sep

*Includes intangible assets of £14.9m, or 18p a share