RM: Back from the brink?

Thursday, Jul 30 2015 by
13
RM Back from the brink

“We have delivered another good half year of results and are on track with our journey back to growth”. That was the opening line from RM’s CEO David Brooks in the company’s most recent interim statement. It was a stark contrast to 2011 when the company’s share price fell by more than 66% and the company was forced to cut its dividend by 54%. The last few years have been tough for RM who provide schools with education and data resources, but the latest figures suggest that RM could be on the road to recovery. The stock’s improving StockRank has encouraged us take a closer look...

Back from the brink?

Most of RM’s business is funded from UK government sources. The tightening of public sector budgets helped drive earnings into negative territory from 18.2p per share (2010) to -2.69p per share (2011). Revenues dropped from £380m to £351m in the same timeframe and have gone on to decline each year since then. However, RM’s recent interim results revealed that the company expects revenue growth in 2016. The interim dividend has also increased by 25% to 1.20p.

Since RM released its interim results on 6 July, the company’s StockRank has risen from 84 to 98 - as you can see from the StockRank Movers page below. To assess whether a company is a recovery play, Peter Lynch, the author of What works on Wall Street, asks three important questions:

  • How is the company supposed to be turning around?
  • Are costs being cut?
  • Is the business coming back?

Let’s take a look at these questions in more detail.

55b9efc53463aStockRank_Movers_-_QVM_upgr

“How is the company supposed to be turning around?”

After earnings crashed in 2010, RM undertook a strategic review which concluded that the company would concentrate on its core UK education market, restructure into four operating divisions, dispose of a number of business operations, and integrate the remaining activities more fully. With a view to dispose of operations that were either ‘loss-making or of marginal profitability’, RM disposed of its US hardware business and Australian operations. Furthermore, RM Education ceased selling personal computing devices in December 2013 and stopped manufacturing hardware devices in June 2014.

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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RM plc is engaged in supplying products, services and solutions to the United Kingdom and international education markets. The Company operates in three segments: RM Resources, RM Results and RM Education. The RM Resources segment consists of TTS Group Limited (TTS), which provides resources used in schools mainly through a direct marketing business model with goods supplied from centralized distribution centers. The RM Results segment provides information technology (IT) software and services to exam boards and professional awarding bodies to allow e-assessment through the use of on-screen exam marking (e-marking) and on-screen testing (e-testing). The RM Education segment is a United Kingdom-focused business supplying IT software and services to schools and colleges. The Company's products include RM Integris, the Company's cloud-based school management system, as well as offerings include RM Unify, RM Easimaths and RM Easiteach. more »

LSE Price
215.2p
Change
-0.4%
Mkt Cap (£m)
181.2
P/E (fwd)
9.0
Yield (fwd)
3.7



  Is LON:RM. fundamentally strong or weak? Find out More »


5 Comments on this Article show/hide all

brucepackard 31st Jul '15 1 of 5
1

Thanks! Thought provoking.
Question: why is the RoCE so high?

Stockpedia reports c. 45%. This seems very high, compared to (for instance) Pearson which struggles to get above 4% RoCE.
I had a quick look at the RM balance sheet. Aside from the pension deficit, there is also £15m of intangible assets, versus net assets of £16m. That would be my other concern.
Any thoughts Alex?

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PeterRussell 7th Aug '15 2 of 5

Excellent, it is on my seriously consider list.

please how did you pick out this stock. I dont find Stokopedia good for trawling stocks or am I missing something ?

Using Sharescope it is easy to trawl all stocks with PEG say < 1

How can I use Stockopedia to trawl stocks on a regular basis ?

Peter Russell

| Link | Share | 1 reply
Alex Naamani 7th Aug '15 3 of 5

Hi PeterRussell,

Thanks for this. You may want to check out our StockRank Movers page, here: http://www.stockopedia.com/stockranks/

...or our stock sceening tool which can be found here:
http://www.stockopedia.com/screens/create/

Also see our webinar on the StockRank Portal, here:

https://www.youtube.com/watch?v=VtHgyW18dP0

I hope this helps?

Best,

Alex

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underscored 7th Aug '15 4 of 5

In reply to post #104206

With the screening tool, you can create your own screens

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value101 18th Aug '15 5 of 5
2

In reply to post #103898

I don't think anyone answered to the question about the RoCE.
I was puzzled as to why the RoCE could be so high compared to the RoA, given that RM has essentially no long-term debt... The answer is about the current liabilities, which are very high for RM (83.3/117.3 = 71%). This is what magnifies the RoCE, as stockopedia calculates it as EBIT/(TA-CL).
The bulk of the current liabilities is a category 'others'. I tried to download the reports from RM's website to learn more about it, but their website gives me an error page! That does not fill me with a lot of confidence in this company, which is suppose to sell ICT solutions!

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