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RM profits drop as schools closed

School closures weighed on profits in the first half
July 8, 2020

RM’s (RM.) adjusted operating profits dropped by more than half at the half-year mark, as the education technology company was hurt by school closures and exam cancellations in the second quarter.

IC TIP: Hold at 242p

The decline in turnover was led by losses in the RM Resources division, where sales dropped by almost half in the second quarter year on year. RM Results and RM Education were down by 32 per cent and 8 per cent, respectively, in the same period. 

RM Results revenue slipped by a tenth, although it was able to secure a contract with the International Association for the Evaluation of Educational Achievement (IEA) to deliver on-screening testing technology for a programme that spans around 70 countries. 

Performance in RM Education was more resilient, with revenue decreasing marginally compared with the same period last year, supported by the recurring revenue derived from its software and services. The segment secured two Multi Academy Trust wins in the first half covering IT programmes across 14 schools.

In March, the group paused the capital spend allocated to consolidate its four distribution centres into a single automated facility. While RM had originally expected that it would be operational by this time next year, chief executive David Brooks said that it will probably be not until early 2022 before the company is in the building. 

Broker Peel Hunt forecasts adjusted pre-tax profits of £5m and EPS of 4.8p for November 2020, compared with £26.6m and 26.4p in FY2019. 

RM (RM.)    
ORD PRICE:242pMARKET VALUE:£ 203m
TOUCH:231-242p12-MONTH HIGH:310pLOW: 110p
DIVIDEND YIELD:2.0%PE RATIO:14
NET ASSET VALUE:56p*NET DEBT:43%**
Half-year to 31 MayTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201995.58.418.302.00
202079.32.201.80nil
% change-17-74-78-
Ex-div:na   
Payment:na   
*Includes intangible assets of £71.9m, or 85p a share **Includes lease liabilities of £6m