I’ve decided to put up a snapshot as I don’t think the market fully understands this business and the moving parts to it:
This video sums up the business very well and is quite current, however, don’t expect to fully get your head around the business in one go.
After viewing it a couple of times and speaking with Ruwan I think this is a genuine sleeper that is aggressively growing and is due a major re-rate in the short-medium term. Potential investors are getting the opportunity to pick up the business at below the IPO price and with the benefit of the business having grown significantly since the time of the IPO.
From Investor Presentation Updated MC @ 17c-18c ~$23m, Cash 3.2m (from September Q), EV of < 20m
Put simply the business is seen as:
A commerce based social network, connecting consumers with their favourite places, based on transactions. Put simply, Rewardle has given the traditional “buy 9, get 1 free” paper punch card a digital makeover and extended its utility by adding prepayment, mobile ordering, mobile payments and social media integrations while offering merchants sophisticated data marketing capabilities (Annual Report)
Currently Rewardle are growing rapidly and are on track to finish the year with over 5,000 merchants (current Q 4721 v 4077 from previous quarter), over 1.5 million members (current Q 1.33m v 1m previous quarter) and over 18.8m check ins (4.2x growth).
Why this growth is important? In my view, these impressive growth stats show that Ruwan and the team at Rewardle are able to successfully market Rewardle as a service that enables High Street businesses the ability to compete and give them information. Rewardle have identified around 200,000 businesses within Australia that operate in sectors where rewards programmes are commonly offered. With 4,721 businesses on the Rewardle platform already, Rewardle has an impressive footprint. That said, the growth potential from here remains huge. The recent Brand Partnerships provide evidence of the value of Rewardle’s existing footprint. As Rewardles network grows, so too will it’s value to existing and future Brand partners..
The many elements to Rewardle:
It is a unique social media app that is tied together with a transaction and commerce. It allows local businesses to track purchase payments and loyalty and market directly to their customer base.
This creates a captive audience which creates a media opportunity for Rewardle and its Brand Partners. Because of the large and growing footprint, Rewardle can sell access to its rapidly expanding network of merchants. For Merchants, Rewardle provides a unique means by which to communicate directly with customers. Imagine a café luring in potential customers because of a free Kit Kat, or a bit size treat (recent announcement). This creates value for the business and the café. Ruwan believes this can generate $3-5m in future value.
CODB – In my view the market is concerned about the ongoing cash rate. As Ruwan has stated, if Rewardle were to stop growing the business would only cost annually $1-$2m to run. Assuming no growth in the merchant network, and 5000 merchants @$50 per month, that would equate to $3m annualised revenue
Now I can hear people saying, which café would pay? @20521 believes he would not pay. But with the free flight option (Air Asia coming on stream this week I believe), or a box of Kit Kats or cookies per month, why wouldn’t you sign up if you are able to analyse consumer trends, enable better direct marketing to your customers and provide them free goods all for a nominal monthly fee.
The case for investment imo:
As stated above, we are getting the opportunity to invest in the coffee and/or retail sector without running a coffee shop. If merchants are to sign up we are talking about a business generating potentially $3m in revenue from merchants, and $3m from media assuming no growth in the merchant network beyond 2015. Currently the Kit Kat partnership is only $100,000 but feedback from Ruwan is indicating that with a big business like Nestle, they would have a media budget in the millions. Rewardle are confident that over time they can convince clients such as Nestle to sign a multi-year million dollar agreement. At the moment Consumer Packaged Goods companies such as Nestle pay AC Nielsen in the thousands to analyse the scan data. Via Rewardle Nestle can see who is purchasing a Kit Kat at a café, and what time, and communicate directly to them. They are getting unique information outside the retailing duopoly that is Coles & Woolworths.
If Michael is able to land a large Brand Partnerships it is likely to generate a big chunk of revenue for the media side of the business that can go towards funding the growth of the network.
Finally, Rewardle is still growing rapidly, and yes there is only $3m cash in the kitty, but there are also a swag of performance options @20c and higher. Ruwan holds a majority stake and would not want to be diluted. In the event that there is another CR I would be happy to top up given the growth here. If you are following a lot of IT stocks at the moment, we are in a land grab phase and I believe Ruwan has no intention of charging customers at this stage given the massive merchant growth opportunity that remains. As the merchant network grows, its value to Brand partners also grows. This year has seen multiple new brand partnerships (QuickFlix, Kit Kat, Air Asia) and I believe there is potential for plenty more to come..
Lastly is the track record of Ruwan. He has run successful businesses before and he is highly motivated, and driven. I’ve found him to be very approachable and communicative with shareholders.
A final view, I understand the SP is not looking particularly bullish down here, but I believe for a business with an EV of 20m, the market cap is not just justified, it is cheap.
Interested to hear other’s thoughts.
RXH Price at posting:
17.0¢ Sentiment: None Disclosure: Held
(20min delay)