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Rethink Group extends major contract

Rethink has three separate contracts, focused on IT, with Marks & Spencer (MKS, Hold at 433p), which have grown over the seven-plus year relationship. The agreement that has been renewed involves a Managed Services contract to provide IT contractors to the retailer, across London. The Managed Services contract is a complete workforce solution, which includes benchmarking, ensuring the customer obtains the service at competitive rates.

Two further on-going contracts with the retailer

In addition, Rethink operates two Master Vendor agreements (which involves the management of the hiring strategy of a customer) with the retailer, one that is a rolling arrangement on the provision of permanent IT staff and another, which provides permanent IT candidates to Marks & Spencer for their digital requirements, including the client’s online trading. While both are operated on a rolling basis, they have continued for several years.

All of the group’s significant contracts recently renewed

Rethink has two further major contracts, one within the financial services sector (Admin Re) and the other in the retail sector. The former involved the signing of a three-year contract during the summer of 2013. In terms of the contract with the major retailer, this was extended during H2 2013.

Good value

We think this morning’s announcement is a strong endorsement of the group’s longer term strategy, which involves the entering into partnership agreements in effect with its customers. We continue to believe that Rethink’s shares represent good value, trading on a FY2014F EV/EBITDA and PER multiples of 7.6x and 6.7x respectively, falling to 5.6x and 4.6x in FY2015F. The group is trading on a FY2015F PEG (using a two-year CAGR in earnings growth) of 0.82x and we therefore believe that the shares warrant a closer look. We anticipate that the company will return to the dividend list by FY2015F.

Shore Capital Stockbrokers acts as NOMAD and Broker to Rethink Group plc. In line with our conflicts of interest policy, we do not have recommendations on & lsquo;house’ stocks.

David O’Brien – 0151 600 3707

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