Companies: RM.   

BUY

RM has won a contract worth £17.1 million to deliver a 'connected learning' service to schools in Lambeth. Under the eight-year contract, RM will provide a complete educational information and communications technology (ICT) service for six mainstream secondary schools, two special schools and two pupil referral units in the local education authority.

The service will include fully managed networks in each school, along with a range of digital learning resources that will be hosted within RM's Kaleidos virtual learning environment. The Lambeth project is the third of three DfES ICT private finance initiative projects that the educational IT supplier has bid for and won.

Forecasts made before news of the deal emerged indicated that pre-tax profits for the year to 30 September 2005 would come in at £13.1 million. This would translate to earnings per share of 10.7p, which means a price-to-earnings rating of around 17 times at the current share price. For next year brokers had forecast EPS of 12.1p, giving a PER of roughly 15 times.

With the current forecasts, the expected rate of earnings growth (13 per cent) suggests that the shares are a little on the expensive side. However, at 30 September 2004, RM had net funds of £25.8 million - equivalent to almost 29p per share - meaning that the business itself is fairly valued for the moment.

But RM's ability to win deals like the Lambeth contract, as well as the recent plaudits its software received at an awards ceremony in London from Becta (the Government agency tasked with developing ICT in schools), means that the future looks very good for the business. Buy for the long term.

RM Group	LSE	£146.11m	157.00p	-2.50p
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