The Investment Column: Government cash helps RM ride crest of technology wave

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The Independent Online
WHEN NEW Labour politicians wax lyrical about the fruitful marriage of education with new technology, Richard Girling and his colleagues at RM must give a cheer. The chief executive heads up the leading provider of hardware and software to the country's schools, together with providing back-up services and advice.

Backed by a wave of Government cash, RM - which stands for Research Machines - has been riding the crest of a profitable wave. Amid the widespread affection for all things Net-related, investors have driven the stock up by a half this year. With the company fetching more than 60-times forward earnings, what are the chances for further gains?

Mr Girling was yesterday showcasing another set of solid full-year results. Turnover was ahead by almost a quarter at pounds 162m, while pre-tax profits jumped 22 per cent to pounds 12.3m. About three-quarters of business came from the supply of computers and education-related computing packages. The bulk of the remainder came from servicing already-installed units, with responsibility for some 12,000 desktops.

Analysts enthuse about RM's dominant presence in an area that should expand for the foreseeable future as the Government continues its push to wire up classrooms. RM already sells into about a third of all primary schools and about the same proportion of secondary schools. One-in-ten pupils across the country uses it for e-mail under the Internet for Learning project. RM also acts as an Internet Service Provider for more than 10,000 educational establishments.

The group appears well placed as it chases contracts on a single-school and authority-wide basis. Dudley has handed over responsibility for its entire technology system to RA. In Northern Ireland, RM has teamed up with ICL to bid for a pounds 300m, 10-year contract to supply the provinces 1,300 schools. No other group has been short-listed.

Even the sceptics agree that the critical number will be the average school spend on IT going forward. At present, about 1 per cent of the pounds 26bn outlay nationwide is devoted to computing-related equipment and services. It is forecast to rise to between 4 and 5 per cent into the millennium.

Current-year earnings are put at pounds 15m, or about 12p a share. The benefits of RM's quasi-monopolist position makes the shares, down 15.5p to 701p yesterday, look attractive, though the lofty rating leaves no margin for error.