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RM struggles to make the grade

Technology and assessment divisions hit by cost pressures
February 15, 2022
  • School resource sales rebound strongly
  • New management rethinks strategy

RM’s (RM.) accounts read like a faintly underwhelming school report. The educational resource provider’s results were  “satisfactory”; its performance was “creditable”; and elements of its recovery have been “pleasing”. At the moment, however, its grades are far from dazzling. 

The group has three divisions: resources, assessments and technology. The first of these, which supplies schools and nurseries with educational materials, is its largest and strongest. Despite some disruption early in the year when schools were closed, resources revenues increased by 24 per cent to £114.4mn, driven by strong catch-up curriculum sales.

The issues lie with the company’s technology and assessment divisions. On the surface, the pandemic should have accelerated growth in these areas. RM Assessment provides software to help digitise exams, while the company's technology arm seeks to improve the use of tech in schools and colleges. There are promising structural growth opportunities here, as more learning moves online for good.

However, in 2021 revenue from technology and assessments plateaued and margins contracted. As a result, adjusted operating profit fell by 24 per cent and 14 per cent, respectively. A variety of factors, including “significant wage inflation”, Brexit and supply chain issues contributed to this fall. 

A change in accounting policy also hit RM's statutory profits. While the company previously capitalised the cost of a major IT programme, it is now being expensed through the income statement and classified as “adjustments”.

Change might be on the horizon. A new chief executive took over in March 2021, and management has recently reassessed RM's business model and strategy. Meanwhile, consensus estimates expect sales to rebound strongly, and for earnings per share to reach 21.3p by the year ended November 2023.

At the moment, however, it seems that RM’s execution still leaves a lot to be desired. Hold. 

Last IC View: Hold, 249p, 7 Jul 2021

RM (RM.)    
ORD PRICE:165pMARKET VALUE:£138mn
TOUCH:160-170p12-MONTH HIGH:260pLOW: 159p
DIVIDEND YIELD:2.8%PE RATIO:33
NET ASSET VALUE:104p*NET DEBT:45%
Year to 30 NovTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201718614.615.86.60
201822121.020.77.60
201922423.223.28.00
20201899.509.203.00
20212115.605.004.70
% change+12-41-46+57
Ex-div:17 Mar   
Payment:29 Apr   
*Includes intangible assets of £72.6m, or 87p a share