RM PLC (LON: RM)

RM Plc is an FTSE All-Share listed information technology company having a global footprint. RM was founded in 1973 and is headquartered in Abingdon, the United Kingdom. It offers market-leading products and services to various governments, educational institutions and examination bodies. It has three operating segments: RM Resources, RM Results and RM Education. RM Resources division provides education resources for pre-primary, primary and secondary schools in the UK and internationally. RM Results division provides assessment software for examinations worldwide. RM Education division is a supplier of market-leading ICT software to schools and colleges in the UK.

Recent trend of dividend payments

 (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment made by RM Plc from FY2016 to FY2020. In FY2020, RM Plc paid a final dividend of GBX 3.00 per share. It had an ex-dividend date of 18 March 2021, and the dividend was paid on 30 April 2021.

Technological trend and advancements

RM Plc has investment programmes in the digital and automation space, which are expected to deliver operational and financial benefits. Globally, also there is a trend of planned widespread catch-up funding in these areas. RM Plc wants to build a clear path to sustainable growth and sharpen its focus on domain strength and market opportunity. The Company plays a significant role in improving educational outcomes. Currently, despite Covid-19 induced disruptions, there is an elevated focus on education. The education space would broaden and expand its digital engagement. The traditional education model would evolve, and the assessment market would adopt technology at a greater scale.  Hence, this trend would be beneficial for the Company and could offer it a clear path to sustainable growth.

Growth Prospects

• Market-leading products and services: RM Plc offers market-leading products and services to various governments, examination bodies and educational institutions. Hence, there is a lot of demand for the Company’s offerings from the education space and overall from all the clients.
• Significant investments: RM Plc has programmes for digital and automation investments. As the education space would engage in more and more digital initiatives which have been accelerated by the Covid-19 pandemic, the Company would have the opportunity to reap the benefits of its investments.
• Improving global education fundamentals: There is a trend among various governments to have elevated policy focus on education. Hence, it could drive the demand for RM’s offerings in the education space and fuel the Company’s growth.
• Resilient business: RM’s business has been resilient during the pandemic. It has a solid balance sheet and strong cash-generative characteristics. In H1 FY2021, RM has increased both its top line and bottom line and reduced its net debt YoY.
• More usage of technology: In the assessment market, technology would be embraced at a greater scale going forward. Hence, there is good scope for sustainable growth for the Company.

Key Risks 

• Public policy of the UK government: UK government funds the majority of the Company’s businesses. However, this funding is constrained by fiscal policy, and adverse economic conditions could lead to a reduction in government spending in education, affecting RM’s business.
• Failure to advance in technology: As the Company’s customers are increasingly embracing technology, any failure to advance in technology would lead to loss of customers for RM.
• Change in education and assessment practice: If there is a drastic change in education and assessment practices, the Company’s offerings may no longer meet customer expectations, affecting RM’s margins.
• Delay in delivery of projects: The Company is involved in large multi-year complex projects. Any delay in delivery could lead to cost overruns as well as reputational damage.
• Data security: As the Company processes and stores personal data, any breach in data security could damage the reputation of the Company. Also, it could affect the future revenue streams of RM Plc.
  

Now we will analyse some key fundamental and shareholders statistics of RM PLC.

Recent Development 

Change in Directorate: On 24 June 2021, RM Plc announced the appointment of Charles Bligh as a Non-Executive Director effective 2 July 2021.

Financial and Operational Highlights (for six months ended 31 May 2021 as of 6 July 2021)

(Source: LSE Website)

• Revenue in RM Resources surged ~37% YoY, helped by the March 2021 re-opening of UK schools.
• Due to the partial recovery of global examination activity in 2021, revenue in the RM Results division was up 3% YoY.
• Schools are increasingly focussing on digital infrastructure. It led to an increase in hardware sales by the RM Education division, and its revenue was up 11% YoY.
• Driven by strong trading in the RM Resources division, overall revenue surged 21% YoY in H1 FY2021.
• The strong performance in top-line resulted in adjusted operating profit surging 96% YoY and adjusted diluted EPS rising 119% YoY.
• Driven by RM Plc’s cash-accretive operations, net debt in H1 FY2021 declined by ~27.1% YoY.

Financial Ratios (H1 FY21)

 Share Price Performance Analysis

 (Source: REFINITIV, Research done by Kalkine Group)

On 9 July 2021, at 7:05 AM GMT, RM’s shares were trading at GBX 243.00, at par against the previous day closing price. Stock 52-week High and Low were GBX 265.00 and GBX 157.00, respectively.

On a daily chart, RM's price is sustaining above 200-day EMA of about GBX 220.00 and 200-day SMA of about GBX 211.00, indicating the possibility of an upward movement. The MACD line is trading above the centreline, however, forming a negative crossover with the signal line.

In the last five years, RM’s stock price has delivered a decent positive return of ~94.40%. It has outperformed the FTSE All-Share index with a return of around 13.23%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

RM delivered a resilient performance in H1 FY2021, with adjusted operating profit rising 96% YoY. It was achieved with a sales increase of 21% YoY. Its adjusted diluted EPS also surged 119% YoY in H1 FY2021. The management remains focused on investment in digital and automation advancements, which provides further confidence for FY2021 and beyond. The Company is benefitting from its market-leading products and services, significant investments, improving global education fundamentals, a resilient business model and the increasing trend of technology adoption among its customers going into H2 FY2021. The management strives to build the right platform and capabilities to capitalise on the longer-term market drivers.

The Board is confident that they would build a path for sustainable growth for the Company. On the technical chart, the next important support level is at GBX 196.00.

Considering the resilient performance, the benefits of the digital adoption by the customers, increasing demand from customers, the Company’s investment in digitisation and automation, decent profitability and improved leverage position of the business,  and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on RM Plc at the current price of GBX 243.00 (as on 9 July 2021 at 7:05 AM GMT), with lower-double digit upside potential based on 14.70x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective buy stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.