RM PLC: Solid but unspectacular midcap

RM PLC (LON:RM) is a UK-based internationally-focused supplier of technology and resources to the education sector. It has three business divisions – 
•    RM Resources: a provider of education resources for early learning centres, primary schools and secondary schools across the UK and internationally.
•    RM Results: a provider of e-Assessment services, enabling e-marking, e-testing and the management and analysis of educational data. 
•    RM Education: a supplier of software, technology and services in the UK that helps schools save time and money, create a secure environment to enhance teaching and learning.

Of late, the company has recorded a solid performance across its divisions on the back of increased international growth, reduced costs which has increased margin, bagged new contract wins and renewals, and increased revenues. 

The efforts have resulted in a 15% rise in annual dividend, substantial increase in free cashflow enabling a significant reduction in pension scheme net deficit, and a successful integration of an acquisition.

It would be fair to say that RM PLC has undergone substantial change in recent years. The newly consolidated RM Resources stands to benefit from distribution synergies to counteract anticipated price pressure as customers move increasingly online, RM Results is much invigorated both in UK and overseas; and RM Education, having dealt with substantial legacy issues, has developed its continuing businesses.

All of which, according to the company, puts it in a good position for 2019. “We continue to expect that tight budgets and funding uncertainty will keep the UK market subdued. However, improved margins, good cash generation and a strong balance sheet mean we are well placed to enable the Group to deliver long-term shareholder value,” noted Chief Executive David Brooks (Feb 2019).

Over the course of 2019, RM PLC’s forward strategy will bank on:

1. Intellectual property (“IP”) and technology development: increase RM’s investment in developing its own IP and our software development capability.
2. International growth: maintain RM’s international penetration.
3. Innovate with RM customers: providing RM customers with further insight into their business.
4. Efficiency and simplicity: drive RM’s costs down through off-shoring of processes, automation, efficiencies and consolidation of supply chains.

In light of the above and latest preliminary figures (at FYE 2018):

For: low net debt; high interest cover (11x); high revenue generation compared to share price; moderate PE ratio (12x); moderate dividend yield (3.1%); moderate RoE (8.4%).

Against: negative tangible assets; Price:BV of 3.7x; share price is close to its 52wk High

Conclusion: RM PLC has put in a solid, but unspectacular, performance and shows no signs of capsizing through pursuing an ambitious strategy. If you want stability rather than fireworks then BUY.