3 Reasons To Buy RM plc Today

RM plc (LON: RM)’s shares surged today. Here’s why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Educational IT and resources group RM (LSE: RM) jumped today, rising as much as 17% at one point after the company released an interim management statement, showing that trading for the three months from June to September had progressed ahead of expectations. 

The company reported lower-than-expected costs and higher-than-expected profits across all of its divisions. As a result, RM now expects a significantly more profitable second half than was previously anticipated. 

But even after today’s impressive trading update, and subsequent gains, RM still looks like an attractive investment and here are three reasons why you should take a look at the company.

Plenty of cashstock exchange

RM is a highly profitable company and has plenty of cash, which management is trying to return to investors. Even after today’s gains, RM supports a dividend yield of 2.7% and the payout is covered nearly four times by earnings per share, leaving plenty of room to grow the dividend.

Additionally, the company proposed a special dividend totalling £14.7m, 16p per share, during March of this year and further special payouts could be on the cards.

What’s more, the group is rapidly paying down debt and its pension deficit. Net debt fell to £28.2m at the end of August, from £38.3m as reported at the same point a year ago. During the first half, RM made a £8m contribution into its pension fund. 

Low valuation 

As RM is chucking out cash and outperforming expectations, you would expect the company to trade at a premium to the wider market. However, this is not the case. 

Even after today’s gains, RM is still trading at a forward P/E of 9.1, making it one of the market’s cheapest stocks. Based on the fact that the company is expecting results to come in ahead of expectations for this year, RM could be trading at an even lower valuation.

Right now, the City has earnings per share growth of 6% pencilled in for this year, followed by 2% next year. These forecasts are likely to be revised upwards after today’s news.

Growing margins

The third reason why RM is attractive at current levels, is to do with the company’s widening profit margins.

In particular, RM’s Education Technology division’s costs are running below estimated levels, long-term contracts have seen costs fall significantly but revenue remains unchanged. Moreover, the group’s Education Resources division has continued to attract customers but once again, costs have fallen widening margins. 

All in all, not only will falling costs all RM to beat earnings forecasts for this year but the group will become more cash generative. This implies that additional cash returns to investors could be on the cards as RM pays off debt and moves into a net cash position. 

The bottom line

So overall, RM has many attractive qualities and it seems as if the company’s growth story is far from over.  Still, only you can decide if RM fits in your portfolio, and as usual, I strongly advise that you do some further research before making any trading decision. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Here’s what a FTSE 100 exit could mean for the Shell share price

As the oil major suggests quitting London for New York, Charlie Carman considers what impact such a move could have…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

Shell hints at UK exit: will the BP share price take a hit?

I’m checking the pulse of the BP share price after UK markets reeled recently at the mere thought of FTSE…

Read more »

Investing Articles

Why I’m confident Tesco shares can provide a reliable income for investors

This FTSE 100 stalwart generated £2bn of surplus cash last year. Roland Head thinks Tesco shares look like a solid…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£20,000 in savings? I’d buy 532 shares of this FTSE 100 stock to aim for a £10,100 second income

Stephen Wright thinks an unusually high dividend yield means Unilever shares could be a great opportunity for investors looking to…

Read more »

Investing Articles

Everyone’s talking about AI again! Which FTSE 100 shares can I buy for exposure?

Our writer highlights a number of FTSE 100 stocks that offer different ways of investing in the artificial intelligence revolution.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top US dividend stocks for value investors to consider in 2024

I’m searching far and wide to find the best dividend stocks that money can buy. Do the Americans have more…

Read more »

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »