iSHMAEL, great to see some more intelligent discussion on this stock, rather than the childish one liners seen here all too often.
The question of availability of scrip for RDF must be exercising many minds, incuding hopefully the RDF board.One 'problem' is that at this stage the company does not need any more cash, at a guess cash flow would be funding 60% of the cost of new installations with the Harris Bank US$ facility providing the rest. This ratio of course is improving all the time and the company has forecast that cash flow by late '06 will be sufficient to fund all new installations and repayment of the Harris Bank debt will commence.
Good point about a further equity raising to repay the Harris bank early however there are a few twists and turns to this. Whilst ever they are using US$ revenue and US$ bank debt to fund the US installations, the bulk of which costs are in US$, they have a natural exchange rate hedge and are not taking a big exchange rate punt. If they were to raise A$ capital or even A$ debt to repay the Harris Bank US$ borrowings then they are a lot more exposed.
Of course in an ideal world it would be great to pick the top for the A$, immediately raise A$ funds and repay the US$ debt but, as well as being almost impossible, trying to predict exchange rates is not and should not be the company's aim.
One other point is that the interest rate on the US$ debt is 4.5%, with about $8million of that being drawn at this date. It would be interesting to know where the A$5million from the last SPP is, wouldn't mind betting that at this stage it is sitting on deposit here earnig a very juicy 6.5%+. The A$ content of each US installation is about 25%, maybe the SPP cash is being used to fund that.
As you say, the scrip shortage almost certainly is adding to volatility, and maybe the establishment of the BNY ADR facility next month will make things even tighter. What's the answer to allow an increase of shares on issue? It's almost certain they will stick to what they know for sometime yet so a takeover of another company in this industry funded by an equity issue is one way. Trouble is potential candidates are almost non existent:- ACS-----their photo enforcement division is a very small part of ACS but with about 350 installations is second to RTS. Mostly wet film with a lot of baggage due to poor performance. A possibility but would have to be cheap. Nestor------all video but not really top notch, also a fair bit of baggage.
Transol-------too small, so much hot air that it's hard to know what's what. Great SP at present but their technology would be of no interest to RTS. There's a few other small ones but nothing really apparent as a T/O candidate.
In view of the above about the only way I can think of increasing the capital of RDF is for the company to make a bonus issue which in effect does not change things all that much or make say a 1 for 2 issue of short dated options at for example $3.25. but we still have the question, what do they do with the cash?
Most likely just a wait and see at the moment, Columbus and Minneapolis have been won with about 8 other major cities to be decided in the next 6 months, if RTS wins the majority of those, cash demands may just increase to the extent a capital raising may be looked at.
RDF Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
