Rectifier Technologies (RFT) is one of my smaller speculative holdings (IRL), however I’ve been accumulating it at a steady pace this week both IRL and on Strawman.

Here we have a profitable $55 million microcap with EV tailwinds, that in FY23 paid a fully franked dividend of 2.3% (gross 3.3%) while reinvesting 90% of its earnings back into growth. And at least for now, there appears to be significant growth opportunities.

RFT has a history of extremely lumpy earnings as you can see below:

Source: Commsec

FY23 has been an exceptional year for RFT with NPAT of $6.46million and a ROE of 40%.

@Winiworked out in his Quck Maths straw that it is conceivable for FY24 NPAT to be in the vacinity of $5.25 million. This would be down on FY23, but still a solid result! if achieved, this will make today’s share price look extremely cheap.

This would put ROE at c. 32%. If RFT could sustain growth and a ROE of 30%, at the current share price of 3.7 cps the business should return investors 16% per year including the fully franked dividends. If the multiple were to expand from the current 8.5x FY23 earnings, investor returns could be significantly higher than this. This is highly likely if growth is sustained.

It will be some time before we know whether growth can be sustained, however I don’t think this will be a binary outcome. With RFTs technology having superior efficacy to its competitors and less waste heat generated from its units, there should be significant tailwinds for RFT in this thematic. I believe the future is asymmetric in RFT’s favour.

With the current share price under 4 cps (and continuing to weaken), I believe this is a unique opportunity to build a speculative position in a business operating in a forward facing thematic with an asymmetric probabilty for further growth.

Disc: Held SM, accumulating IRL under 4 cps.