Support Services
The sector has performed relatively well over the last 12 months as the
defensive growth characteristics of a number of the sub-sectors have come to
the fore. We remain Buyers of the outsourcers that have proven track records,
strong positions in growing markets and low levels of debt. Our Sell
recommendations include the late-cycle stocks within the distribution,
equipment rental and security sectors.
Key recommendations
Serco BUY
Mitie BUY
Stobart Group BUY
Electrocomponents SELL
􀂄 Key recommendations
􀂃 Serco (Buy) – A very high quality outsourcer with strong visibility and
significant barriers to entry in its core markets.
􀂃 Mitie (Buy) – Proven track record, structural growth driven by outsourcing
and cost savings for clients, competitive edge and strong financing.
􀂃 Stobart (Buy) – Likely to benefit in the economic downturn, and gain
market share, with its ‘pay-as-you-go’ costing model. DPS yield c.10%.
􀂃 Electrocomponents (Sell) – A late-cycle cyclical with minimal earnings
visibility. Substantial downgrades could follow.
􀂄 Recent newsflow – Year-end trading statements were relatively predictable,
with the cyclicals detailing weakening market conditions and the outsourcers
highlighting a desire by clients to cut costs and improve efficiency as they react
to the downturn. The sector is generally strongly financed (reflecting the cashgenerative
nature of the business models and organic growth), but debt levels
have obviously been a key point of focus.
􀂄 Key issues – Economic sensitivity, levels of debt, competitive strength and
proven management ability to navigate through difficult times are the key issues
on which we are focused. While we highlight the attractions of structural growth
in a number of sub-sectors, these areas will attract increasing competition, and
we therefore also look for a competitive edge.
􀂄 Valuations – PERs range from below two times for Speedy Hire (where banking
facilities are being renegotiated) to the high teens for Capita and Serco where
we are confident the underlying structural drivers are intact. Our view remains to
avoid the cyclicals (unless financials are strong and there is significant potential
upside, as with the recruiters) and invest in the established outsourcing trend.
􀂄 Catalysts – Share price drivers will be a mixture of macro for the cyclicals and
company newsflow for the outsourcers. We will be watching the economic
indicators closely for the rental providers and distributors, and anticipate
significant contract announcements from the outsourcers (from both government
and corporate clients).

Key recommendations 4
Valuation table 6
Investment summary 7
Balance sheets 9
Overseas Earnings 10
Sector Performance 12
Macroeconomic forecasts 13
UK 13
Euro area 13
US 13
Company financials 19
Aggreko 20
Ashtead Group 22
Atkins WS 24
British Polythene Industries* 26
Bunzl 28
Business Post*† 30
Capita Group 32
Communisis *† 34
Compass Group 36
Connaught 38
Data Cash Group*† 40
Davis Service Group 42
De la Rue 44
Electrocomponents 46
Forth Ports 48
G4S 50
Havelock Europa*† 52
Hays 54
Interserve 56
James Fisher*† 58
Johnson Service Group*† 60
Lok’nStore Group*† 62
Mears Group*† 64
Michael Page International 66
MITIE Group* 68
Mouchel Group 70
Northgate 72
OPD Group*† 74
Office2office*† 76

Premier Farnell 78
Rentokil Initial 80
Robert Walters*† 82
RPC Group 84
RPS Group*† 86
Serco Group 88
Shanks Group 90
Speedy Hire 92
Spice 94
S Three* 96
Stobart Group*† 98
Styles & Wood*† 100
VT Group 102
Wincanton 104