Companies: RM.   

Our last update for IT services business RM appeared more than two years ago, when the shares were priced at 179.5p each. Back then, a recently won contract, worth more than £17 million, to supply educational information and communications technology services to schools in Lambeth was one of the factors that encouraged us to recommend investors buy more of the group’s shares.

We had first tipped the shares when they were trading for just 59p back in October 2002, and only 11 months later – when the shares hit 122p – we recommended that investors in RM should take profits on half their holdings. But a combination of net funds worth 29p per share, a not-too-punchy price-to-earnings rating and the group’s proven ability to win sizeable IT deals led us to a renewed buy stance in February 2005.

Today, the share price is 250 per cent higher than when we first began to follow the business almost five years ago. Since then, the group has also paid out more than 20p per share in dividends to its investors.

However, we now think it is time that investors finally cashed in their gains for good. Forecasts of 12.2p and 13.7p earnings per share for the current financial year and 2008 should not justify RM’s current share price, in our view.

As of 31 March, the group had net funds equivalent to 23.1p per share, so the business excluding its cash is valued at 15.1 times and 13.4 times EPS for this year and next respectively. Earnings growth would have to be greater than the estimated 12.3 per cent for us to consider RM fairly valued.

RM is, of course, still winning contracts – the last ones it announced being those with Leeds and Islington councils signed in May – meaning that it is business as usual at the group. But although we have a habit of selling out too early at TheWrongPrice.com, we think it wise that investors in the share who are sitting on substantial gains should take profits now. Sell.

RM Group	LSE	£146.11m	157.00p	-2.50p
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Interim slide at RM			13/05/2008
Kaupthing Singer & Friedlander			08/02/2008
RM Plc			20/07/2007
RM Plc			21/02/2005