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RM still facing headwinds

RESULTS: RM expects stronger second-half profits, but a significant longer-term revenue decline is also on the cards
July 8, 2013

Shares in RM (RM.) jumped nearly 10 per cent after the information and communications technology specialist forecast that new school openings under the Building Schools for the Future (BFS) programme should boost second-half profits. Accordingly, broker Numis Securities has upgraded its full-year pre-tax profit forecast by 22 per cent to £11.6m, giving EPS of 9.7p (from 10.9p in 2012).

IC TIP: Hold at 71p

RM's first-half performance benefited from an earlier root and branch restructuring and, after adjusting for exceptional items, underlying operating profits grew 16 per cent year-on-year to £5.2m. Moreover, operational efficiencies meant that cash generation exceeded operating profits and management is now working to assess by how much the cash pile exceeds the company's prudent needs. It will return any surplus to shareholders, with an announcement expected later this year.

Meanwhile, adjusted operating profit at the core education technology division grew from £1.6m to £2.7m - although revenue declined slightly to £82.6m. Look beyond the second half, however, and spending constraints and a wind down of the (BSF) programme is likely to result in a reduction in annual revenue of about £40m between 2013 and 2015. Moreover, the education resources distribution business suffered a decline in orders that trimmed revenue there by 8 per cent to £26.4m, and operating profit fell 23 per cent to £3m.

RM (RM.)
ORD PRICE:71pMARKET VALUE:£66m
TOUCH:69-71p12-MONTH HIGH:86pLOW: 63p
DIVIDEND YIELD:4.4%PE RATIO:7
NET ASSET VALUE:24p*NET CASH:£51.8m

Half-year to 31 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20121250.60-0.200.75
20131195.044.200.84
% change-5+740-+12

Ex-div: 14 Aug

Payment: 13 Sep

*Includes intangible assets of £17m, or 18p a share