@jamwolf
How do you get an EBITDA multiple of <3? The announcement says they're likely to do $10-12m EBITDA in FY17; current market cap is ~$60m and if you treat the City of Chicago $25m payable as debt (which it effectively is) and net it off against $17m cash you have net debt of $8m, gives EV of $68m. So even taking the top end of EBITDA guidance ($12m), i get an EV/EBITDA of about (68/12) = 5.7x.
And EBITDA multiples are highly problematic for a company with a large capex/D&A profile such as RDF. The BOOM model they run in the US compels RDF to spend exorbitant amounts of money constructing and maintaining their traffic systems, and to add insult to injury RDF is also on the hook for removing the system when the local government decides to end their contract. This is why RDF has a very large annual capex spend - $23.5m combined in FY15-16, $20m of which was sunk into the US. They continued to actually spend in cash in 1HFY17 - $6.2m PPE capex + $2.0m development costs - roughly equivalent to their accounting D&A charge, which was $9.6m.
Putting the above into context, if i assume they're spending in cash say $15m p.a. on capex + software development, they need to earn $15m EBITDA just to break even at an EBIT level, which they're not going to do in FY17. So when one thinks about RDF in EBIT rather than EBITDA terms, the company is not even remotely cheap.
The reason RDF is potentially interesting to me is because they have a motivated strategic investor in there trying to turn the ship around, and they are moving away from the BOOM model in the US with their HALO system which will dramatically reduce their capex/D&A profile. In very simple terms, if they can get back to doing $30m+ EBITDA, and reduce their D&A from its current ~$15m to more like $10m by transitioning away from the BOOM model, that becomes $20m EBIT which starts sounding good value to me on an EV of ~$70m.
