Ann: Software Subscription TCV and ARR Update, page-12

My investing screener has always been to look at well established companies that have a track record of at least 10 years of annual reports that I can look into and make my judgement on. RUL does not fall into that category so I am putting RUL in my "risky" business pile. Let's go through the Buffet & Munger checks which I usually do when I research companies...so DYOR too.

Do I understand RUL as a business?
I could say yes. Having had exposure in the mining industry I know how mine planning and scheduling works and how much of a pain in the ass it is to do. Always trying to find the most efficient and most cost effective way to deign and program the mining sequence, machines breaking down, finding the shortest haul route etc. When I had a look at their website and their Youtube channel outlining their capabilities I can confidently say they offer a great product. And now that they're trying to create a turn-key enterprise system from various parts of a mining business', the potential for an all-in-one solution is clearly there. From their last report around 2/3 of their revenue is from their Software Division which is now switching to a subscription type of model as opposed to a one time payment. Revenues will become more predictable and customers don't have to fork out huge capital upfront. I am somewhat reminded of Office 365 or Adobe for some reason... Probably one of the reasons I am excited for this business is their transformation to predictable growing revenues. The upside potential is huuuuge! Despite saying this the CEO did state that mining companies have been slow to embrace new technologies in their 2019 report which worries me. They also have the other (mostly) 1/3 of their business as an Advisory arm and i think this synergises well with their software.

Does it RUL a durable competitive advantage?
I usually look at the consistent growth rates of Revenue, EPS, and Operating Cash to make a call on this. Revenue hasn't grown much in the past 10 years bouncing between $60M-$100M, EPS has been appalling, and Operating Cash has been all over the place. With that said, I guess the business still has a long way to go in trying to prove their moat - the CEO did state that they have the "industry's only Enterprise Planning Framework" which I believe is a very attractive pitch to give. I don't think they're there yet but CEO believes they have built strong foundations as the pre-eminent provider of such service. I can also understand that with the switch to the subscription license model the initial few years are expected to have lower revenue and earnings whilst in growing mode. CEO believes they are a third of the journey there to where they need to be. Looking at all the competitor products none of them are really trying to do what this company is trying to achieve. So, even if they don't have an apparent moat right now, in time they most likely might.

Does it have good management?
ROIC is what I look for when judging the management team and it looks like RUL has had negative returns on invested capital for the past few years. But, reading the MD/CEOs address in the annual reports I can see some sort of honesty and integrity in what he's saying when it comes to the wins and losses of the business. One thing I make sure of is if the CEO has his skin in the game or just along for the ride - the CEO is holding around 8M+ shares which is a positive as well as the other guys on the board...
If anyone else has any other metrics they use to judge good management please let me know!

Is the price at a discount?
To be completely honest, I don't know how to value this company. I might need help with this one..
If I was to treat this business like a rental property I get an owners earnings value of $13.23M divided by the shares outstanding say 216.4M I get a fair value in the ball park of $0.61... (of course, a business is waaay different to a rental property).
If I was to calculate my payback time (8 years) using Free Cash Flow of $28.2M I get a fair value of around $1.02.
Of course I did try to do a dummy DCF assuming a 20% EPS growth rate (conservative for a SaaS tech company?) and a PE of 16 (using owner earnings instead) and get a sticker value of $1.50...

Well, at least I know where this company's value is landing ball park... Am I invested yet? No. But, if the price falls to it's March 2020 level then maybe yes I will take a bite of this pie.

These are just my thoughts though and quick and dirty research numbers. Please do your own due diligence.
If you feel I have made an error somewhere just let me know I am open to criticism. Note I have only been investing for the past 12 months and I don't usually go for risky companies like this one, but after having heard of it from a podcast somewhere I knew it was just right my alley and easy to understand (which is my first criteria). I do believe investing in small/microcaps with money you dont need is exciting, especially if the SP rockets!