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RM to expand education resources business

News of an acquisition alongside decent full-year results sent the share price up 17 per cent
February 7, 2017

After several years of double-digit sales declines at RM (RM.), the fact that revenue only fell by 6 per cent in the year to November 2016 was a relief to shareholders. That relative improvement and news of the group's proposed acquisition of Connect Group's (CNCT) education and care business sent the shares up 16 per cent on results day.

IC TIP: Buy at 168p

The target business is a supplier of education resources and in the year to August 2016 recorded £64.8m of revenue. If both shareholders and the competition and markets authority (CMA) approve the deal, RM will pay £56.5m of cash for the business, which is expected to substantially enhance earnings.

This acquisition is the latest development in the group's strategy to increase market share at RM resources which, after several years of growth, suffered a 7.4 per cent decrease in revenues in the reported period. The UK market has been tough for this division as school budgets tighten, but the group's growing overseas exposure is helping to soften its revenue decline.

At the group level, a 0.9 percentage point rise in adjusted operating margins sent operating profits up 4.6 per cent to £18.8m. This margin improvement is expected to continue in the current financial year and yet broker FinnCap expects adjusted pre-tax profits to fall to £17.2m, giving EPS of 15.4p (from £18.1m and 17.4p in FY2016).

 

RM (RM.)

ORD PRICE:168pMARKET VALUE:£139m
TOUCH:167p-169p12-MONTHHIGH:172pLOW: 112p
DIVIDEND YIELD:3.6%PE RATIO:12
NET ASSET VALUE:9.4p*NET CASH:£40m

Year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20122897.44.33.0
20132629.46.73.3 †
201420315.813.94.0
201517819.218.55.0
201616815.114.46.0
% change-6-21-22+20

Ex-div: 16 Mar

Payment: 21 Apr

*Includes intangible assets of £14.8m, or 18p a share

†Excludes special dividend of 16p a share