Jimmy CYes, the TCV number can result in investor’s expectations...

Jimmy C

Yes, the TCV number can result in investor’s expectations soaring to unrealistic levels. That said, RPM are in a somewhat different position to the many tech companies claiming ARR where sales contracts are not certain for much more than 12 months. Investors are left having to monitor the churn rate to build certainty.

Here we have ARR which is by and large locked in with Mining Groups for three years. RPM’s cost base comprises two major components, people and product development. In the last quarter of FY2019, they completed two six year software development programmes, with the annual spend on Product Development dropping from $14.4 m (FY 2018) to $13.1 m (FY 2019). Someone commented that software companies have to keep spending to stay ahead of their competitors. Yes, but you don’t have to spend for the sake of spending. As they do their product development in-house, these two cost components are intertwined. Their other expenses are modest where items such as rent, travel and admin total $8m per annum. IMO, an expense profile which is likely to be contained, not ramping up proportionately as Revenues grow.

They last reported Gross Margin at 91%.

IMO, we are likely to witness a ‘text book’ case of operational leverage. The product suites have by and large been perfected and the rapid scaling is indirectly an endorsement of this. The impacts on perpetual license revenue will pale into insignificance over time. Their Advisory Service business will benefit with the new products. Very strong balance sheet where considering the net proceeds of the receivables and payables equation, cash effectively extends to $40m +. No signs of dilution for shareholders. Only 216 m shares issued. The first $10 m of nett profit after tax will yield an eps of 4.6 cents. PER of 40 given momentum equates to a SP $1.84. This is my first milestone and I believe this will happen sooner than most think. Great Company !! Great future !!

Rokewa