RUL (ASX) Ann: Software Sales TCV and ARR FY20 Update

Originally posted by Rokewa: ↑

Hi Steve

Hope I have the just of your question correct. Interpret you are questioning where are people get the confidence to invest in RPM, as numbers on the surface don’t really inspire.

Happy to share my read of their business and what the future holds. Herewith some observations, points and facts in support.

* Firstly important to acknowledge that we are talking a mature business in RPM, versus the many exciting tech businesses out there, where the appeal is driven by disruption with resulting potential. As at 31 Dec, RPM’s Software Subscription Revenue contributed a mere 16.4 % to the Software Revenue (License component contributed 1.9%). 76% is earned through contracted Software Support and Consulting.

* If we extend this to the other Revenue streams ( @31 Dec incl. Advisory Services & GeoGas totalling $ 17.1m), then the Software Subscription Revenue contributed only 9.5 % to the Total Revenue. By deduction you can conclude that, if you reinstate the lumpy Perpetual License business opposed to introducing the Subscription model, we have a business which is by & large viable, reliant on organic growth, a tad boring but sustainable. Strip out the substantial spend on R&D over the past 5 years (approx $14m per year) and you will agree not so boring and more than viable.

* In support of the above preamble, herewith a bit of a fact sheet incl. some Y-o-Y growth indicators by Revenue stream as reported end FY2019

Recognised Software Revenue up + 9.2 % [of the $ 10.3 m Subscription component, only $ 0.9m recognised]
Perpetual License Revenue DOWN by 11%
Combined Software Subscription & Perpetual License up 46% to $ 22.4m

Annual Maintenance up 11.2 %
Consulting Services up 16.8 %
Advisory Services up 8.4% to $ 25.9m
GeoGas up 2.2% to $ 4.7m

Total Revenue up 8.7 % to $ 80.1m

* Given the above, can I suggest you now consider the value of writing $ 34.5 m TCV of new Subscriptions business plus $ 7.5 m of Perpetual License Revenue during FY2020. The TCV number can be added to that achieved in FY2019. The ARR number as reported is inclusive of that achieved in prior years.

* The Company has demonstrated the ability to contain costs, so the growth on the combined Subscription & Perpetual License business will essentially drop straight to the bottom line.

To illustrate the point further, take an NPAT number of $ 10 m (which is no longer pie in the sky), divide by 216 m shares (as outstanding) and you achieve EPS of 4.6 cents. Apply a PER of 35 and you have an SP of $1.61.

Then every $ 2.16 m of additional NPAT will deliver a further 1cent of EPS. IMO, this alone defines the opportunity going forward.

* The announcement this morning of an acquisition funded via cash will simply accelerate growth in Revenue, adding to the compounding power of this business. Assume that Revolution will also be a high Gross Margin business. We get to hear more in the coming weeks.

* Re response to future results. I for one will be looking at the portion of Revenue recognised each term and better understanding the carry of Revenue term to term. This can could the numbers and effectively mask the performance.

Hope this provides you with some insights. It is why I am invested and remain high conviction.

Rokewa

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hey i think i arrived at a similar valuation 3 months ago! $1.50 was where i landed and you landed on $1.61.
This business is seriously undervalued. 50% upside here.

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(20min delay)
Last $2.55		Change -0.030(1.16%)		Mkt cap ! $564.7M

Open	High	Low	Value	Volume
$2.60	$2.60	$2.52	$1.624M	635.1K

hey i think i arrived at a similar valuation 3 months ago! $1.50...

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hey i think i arrived at a similar valuation 3 months ago! $1.50...

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