Stock to Watch

8 July 2015

**DESK COMMENTARY**
We recently closed an $8M equity raise for REFFIND LTD (RFN.AU), completed in conjunction with an IPO. The company will list on the ASX tomorrow Thursday 9 July under the ticker ‘RFN’.
The response from our client base to the deal was overwhelming, to say the least. The last transaction we were involved in whereby we had over $40M in demand across more than 30 institutions for a $20M market cap was 1-Page (1PG.AU), which has since gone up 10x. We have high conviction on RFN to also perform strongly, particularly given the steady stream of news flow expected and attractive valuation starting point ($20m market cap at the issue price of $0.20).
So...what does RFN do?

• In short, RFN is a smartphone app which essentially facilitates more efficient and effective communication between a corporation’s management and its employees.
• RFN was founded by tech commercialisation company ‘Digital4ge’ and since being commercialised earlier this year has had significant traction, securing many tier 1 clients along with a strong pipeline.
• Employee engagement is getting more difficult for corporations due to technology and structural workforce changes. Current methods of ‘engagement’ are archaic with too many emails, endless voicemails, mandatory training and cumbersome engagement surveys. The end result is a disengaged and unmotivated workforce.
• RFN currently has three ‘pillars’ to the product:

1. EMPLOY: supercharging a company’s employee referral platform;
2. ENGAGE: brief and simple communication between management and employees; and
3. EDUCATE: short form video content for compliance/induction/product training.

And...why do we have such high conviction on this stock?

• RFN has an existing and growing client base, projected to exit FY16 with ~100clients paying on average $4k/month (i.e ~$5m annualised run rate). Companies of this nature tend to trade on revenue multiples of between 10x – 20x, simplistically implying a target market cap of between $50m ($0.50/sh) and $100m ($1.00/sh) by end of FY16. What we are particularly impressed about is that RFN has been able to secure many tier 1 clients (e.g. Coles, Coca-Cola, AMP, Fuji Xerox, Lion Nathan and Pac Brands) in such a short period of time since commercialisation. In addition, the implementation time for each client is fast, reducing the requirement for a lot of ‘hand holding’ post securing new clients. The revenue model in simple terms is a SaaS monthly fee (depending upon which ‘pillar’ of the product offering a client takes up).
• Highly experienced Board and management team. Non Execs include Geoff Morgan (Morgan and Banks, Talent2) and Peter Clare (ex CEO Westpac NZ). Guys of this calibre don’t get involved with a $20m market cap company if they think it is going to stay a micro-cap. Both will open plenty of doors and we note that in 2014 Geoff Morgan finalised the sale of Talent2 to the largest privately owned recruitment firm in the world, Allegis. Allegis would make a great 'channel partner' for RFN, effectively providing a launchpad into the US and delivering significant scale. For those of our clients that were fortunate to meet with Jamie Pride and Ben McGrath during the IPO roadshow, you’ll no doubt agree that these two are first-rate. Both Jamie and Ben are co-founders of Digital4ge and will remain as Executives with RFN upon listing. These guys are highly ‘backable’ and have been pragmatic with their vending valuation of REFFIND (i.e.. they could have priced the vend more aggressively if they wished, but wanted to ensure the listing is a great success and the market will support Digital4ge’s other transactions in due course).
• HR Tech sector is HOT, as demonstrated by the increasing number of successful IPOs and M&Ain the space. ASX-listed peers include Seek (SEK, ~$6b market cap) and 1-Page (1PG, ~$300m market cap).

In terms of financials, cash position upon listing will be ~$7M and RFN expect to be breakeven by late FY16. Market cap at listing will be attractive at $20M (at the issue price of $0.20/sh). The monthly cash burn is currently ~$150k/month but we expect that to ramp up towards $250k/month as marketing and sales intensify, particularly in the US. ‘Digital4ge’ will own almost 50% upon listing and is escrowed for 2 years. So freely tradebale stock equates to ~50m shares. News flow is expected to be regularly with new client contracts, new Board/management appointments and potential M&A/strategic partnerships.
We are currently ‘restricted’ on the stock in terms of recommendation/price target (given our Lead Manager role in the IPO), but will be initiating full research coverage in due course.