RM PLC (LON: RM.)  

RM PLC (LON: RM.) is an FTSE All-Share index listed Company that supplies technology and resources to the education sector. Moreover, it provides products and services to educational institutions, exam bodies, and international governments. The Company is focused on the maintenance and development of a diverse set of innovative solutions and services, all of which are tailored to the demands of educational users.

The Company’s results for the year ended 30 November 2021, are expected to be released in February 2022.

Recent trend of dividend payments

The Company had paid an interim dividend of 1.7 pence per share on 27 August 2021, while the ex-dividend date was 22 July 2021. In comparison, RM. had not paid any interim dividend during H1 FY20.

Growth Prospects (also encapsulates full-year trading update released on 09 December 2021)

• RM Specialist Curriculum: The performance of RM Resources UK was especially positive, with schools and nurseries relying on RM's specific curriculum brand to help them meet their catch-up goals.
• Education Landscape: RM is ideally positioned to capitalise on the changing educational landscape through its three divisions, RM Resources, which is a known producer of educational resources; RM Results for major assessment software; and RM Education which is provider of information and communication technology (ICT) software, technology, and services to UK schools and institutions.
• Elevated Capital Expenditure: As a result of the projects, as well as broader capital investments, the Company expects capital spending to remain elevated for the duration of FY21 before declining significantly in 2022. It will continue to use a £70 million revolving credit arrangement.

Key Risks

• High Leverage: The Company’s debt to equity ratio of 0.47x remained significantly higher than the industry median of 0.17x during H1 FY21, implying a weak leverage position when compared with the industry.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Rising Interest Rates: The Bank of England has decided to raise interest rates by 25 basis points to 0.50%, keeping pressure on UK Equities.

Key Fundamental Statistics & Shareholding Pattern of RM PLC.

Schroder Investment Management Ltd. (SIM) is the most significant shareholder as it held nearly 14.26 million shares as of 31 December 2021. 

Interim Results (for the six months ended 31 May 2021, as of 6 July 2021)

(Source: Company Filings)

• Improved Financial Performance: reported financial growth as revenue jumped 21% year-on-year in H1 FY21.
• Robust Profitability:’s adjusted profit before tax rose by around 114% during H1 FY21.
• Solid Balance Sheet: Its pension position turned from a deficit to a surplus, following the improvement in net debt position.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 04 February 2022, at 08:00 AM GMT, RM.’s shares were trading at GBX 188.00, flat against the previous day’s closing price. Stock 52-week High and Low were 260.00 and GBX 181.00, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. The 14-days RSI of ~46.20 was close to the oversold zone. 

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Business Outlook

The Company’s balance sheet remained healthy, with a lower net debt position and a change from a deficit to a surplus in the pension fund. The outlook seems promising on the back of improved education fundamentals, expected benefits from digital programmes, reduced net debt position, and solid trading momentum. Furthermore, the performance of the resource division for the UK geography remained encouraging during H2 FY21. Meanwhile, RM expects full-year FY21 adjusted results to remain in line with the market expectations.

Considering the significant operational progress, decent H1 FY21 financial performance, resumption of interim dividend, 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 188.00 (as on 04 February 2022, at 08:00 AM GMT), with lower-double digit upside potential based on 10.72x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Disclaimer

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