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RM scrapes a pass as budgets tighten

Tight school budgets and a shift from hardware to software weighed on the schools supplier.
February 5, 2016

Shares in RM (RM.) fell sharply after the schools supplier posted a 2 per cent slide in adjusted operating profit to £18.2m in the reported period. Management blamed a bumpy transition from manufacturing hardware to selling software - which helped improve RM's adjusted operating margin by 1.1 percentage points to 10.2 per cent - as well as pressure on education budgets and the opening of fewer schools.

IC TIP: Buy at 153p

Those challenges precipitated a 28 per cent plunge in sales in the key education business, which provides software and IT services. That was despite the division sealing managed services contracts with 44 schools, and more than 350 schools in Derbyshire adopting its cloud-based student management system.

Sales climbed a tenth in the results division - which provides digitised exam marking, testing and data analytics - as it inked a major e-marking contract with exam giant AQA. Revenue also rose in the resources business, which supplies third-party learning materials to schools, as it won market share and cashed in on strong overseas demand. But trading worsened in the second half with the end of curriculum changes, which had spurred demand for new products.

Broker Numis cut its forecasts and now expects EPS of 15.5p in the year to November, compared with 15.6p in FY2015.

 

RM (RM.)
ORD PRICE:153pMARKET VALUE:£127m
TOUCH:150-156p12-MONTH HIGH:185pLOW: 138p
DIVIDEND YIELD:3.3%PE RATIO:8
NET ASSET VALUE:23p*NET CASH:£48.3m

Year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2011**351-23.4-25.33.0
20122897.44.33.0
20132629.46.73.3†
201420315.813.94.0
201517819.218.55.0
% change-12+22+33+25

Ex-div: 10 Mar

Payment: 8 Apr

*Includes intangible assets of £14.6m, or 18p a share

**14-month period to 30 Sep

†Excludes special dividend of 16p a share