MIDAS: Prospects bright for hi-tech classroom equipment firm

Updated: 18:28 EST, 6 February 2010

Mention a classroom and many people still imagine rows of desks filled with pupils staring out of the window or writing in an exercise book as teacher stands at the front, chalk in hand, scribbling on the blackboard.

But today’s classrooms are filled with equipment such as digital microscopes, laptops and interactive whiteboards, which look like white blackboards but are actually computers that can be used by teachers and pupils.

Desks are often arranged in a circle with the teacher in the middle. Children have electronic cards they swipe to gain entry to school, school dinners are paid for not with cash but by using another card – even the register is taken electronically.

The group's latest contract win will see it generate £90 million of revenue over the next five to 10 years

RM is a leading company in this field, providing a wide range of technical tools for schools in Britain, the Continent, the Middle East, Asia and America.

Floated in 1994, the group has maintained or raised its dividend every year since and hopes to continue doing so for the foreseeable future.

In the year to September 2009, RM delivered a 21 per cent rise in underlying profits to £17.7 million and a six per cent increase in the dividend to 6.17p.

This year, profits are expected at about £20 million and the dividend is forecast at 6.6p.

The company delivers a trading update tomorrow and this should be relatively upbeat.

Only last week, RM chief executive Terry Sweeney said the group had been chosen by Essex County Council to provide IT services for its entire Building Schools for the Future programme, a project expected to provide the company with more than £90 million of school revenue over the next five-to-ten years.

The initiative is a Government-funded scheme to rebuild or refurbish all State secondary schools.

Worth more than £50 billion, it is divided among local authorities and ten per cent of the total funding has been designated for IT.

While the Essex project is one of the largest, RM has also been chosen to work for 14 other councils, providing IT support for more than 100 schools.

Over the next six months, the group expects to add to this list as it is bidding for more contracts.

However, some investors have raised concerns about RM, fearing that cuts in Government spending will affect its prospects. Against that, the education budget for the year to this March is six per cent higher than last year and it is scheduled to rise again over the next 12 months.

Schools have never had so much money to spend and there is an overwhelming desire to use a significant tranche of that cash on computers and peripherals.

RM is also involved in compiling league tables, so it works with GCSE, A level and International Baccalaureate exam boards, analysing results and turning them into usable data.

The company even oversees the sending of pupils’ papers to markers electronically, scanning them into computers and emailing them to the relevant parties.

Finally, RM has an overseas arm, which is doing well, particularly in the US.

Midas verdict: RM shares were trading at about 220p two years ago but today they are 1723/4p. This seems unfair. The business has grown steadily since then and should continue to do so over the next decade. Buy.

One drugs firm stands out in struggling sector

BTG is a small but fast-growing drugs company that specialises in intensive care products, as well as treatments for neurological and other disorders, and cancer.

Some drugs are already in use in hospitals here and abroad and some are in various stages of development.

Unlike many smallish pharmaceutical firms though, BTG aims to fund its development primarily through sales of existing drugs, rather than relying heavily on shareholders or banks for new money.

Last week, chief executive Louise Makin announced that Swiss regulators had approved one of the company’s key medicines, DigiFab, which is already being used in America.

Several others are in the final stages of regulatory approval around the world, including a treatment for type one diabetes (which affects young children), a product for varicose veins and one for prostate cancer.

BTG is spending heavily on research so it is not expected to be profitable in the next couple of years, but sales are forecast to grow from £85 million in the year to March 2009 to £96 million this year.

Midas verdict: Midas recommended BTG just after it had taken over rival Protherics. That was December 2008, when the price was 155p. Today it is 175p so it has risen 13 per cent in just over a year. The performance is reasonable so far, but there should be plenty more growth to come. BTG is well respected, well managed and has good prospects. Buy.

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