Education IT specialist RM has had a tough year -- but investing now could pay off.
Education IT specialist RM (LSE: RM) has spent the last six months divesting, downsizing and restructuring its business to deal with the impact of public sector budget cuts. Despite this, the company's latest results show that it did turn an operating profit and will be paying a solid dividend in April.
New broom sweeps clean
RM has sold a number of its non-core assets in order to focus on its traditional and more profitable UK education business. This brings to an end what new chairman Martyn Ratcliffe describes in today's results as the company's "unsuccessful international expansion programme".
One of a number of new board members, Ratcliffe admits that RM should have seen the problems coming when considering the impact of public sector budget cuts, saying "the severity of the changes was not fully appreciated by the business".
Ratcliffe says that RM has now completed its restructuring program, leaving the company with a lower cost base.
The results are in…
Today's results cover the last 14 months, rather than the last 12, and show that RM made an operating profit of £10.4m on revenues of £350.8m, with a loss before tax of £23.4m -- most of which relates to one-off restructuring costs. Admittedly, this operating profit is less than half last year's £22m, but it does suggest that RM's underlying business is still viable.
RM also has net cash funds of £11.3m -- up considerably from last year's £0.5m, although some of this cash is the proceeds of recent asset sales.
The final dividend payment will be 1.53p, making a total dividend of 3p for the year.
RM -- value or trap?
The markets were not impressed with today's figures, knocking RM's share price down from 80p to 69p as soon as trading started this morning. At this price, the shares yield a reasonable 4.4%.
Although RM is likely to face further challenges ahead, schools will continue to need IT infrastructure and software, and RM's strong brand and large customer base should enable it to cement its position providing these services in expectation of better days ahead.
RM's new chairman, Martyn Ratcliffe, has purchased £1m of shares since October, suggesting he is committed to turning the company around. The next year will be critical for RM: if it manages to meet its forecasts (as it has done this year), then I think the chances of a long-term recovery are good.
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