Pinned straw:
Main Thesis for RPM Global is that as it migrate completely to Software subscription as opposed to maintenance, reliability of revenue will be strong and I expect they keep growing subscription revenue half on half.
This time that trend has gone little reverse.
The reason for this given was below
Now if we trust management and apply adjustment for $2.4m ( i.e remove 2.4m revenue from 2HFY2023 and add it back to 1HFY24), the graph looks like below, which is what I would like to see.
Management didn't flag that in FY23 result there is an extra $2.4m in the numbers. If they would have flagged that then probably there isn't any concern.
I attended the call and heard CEO admit that their communication should have been clear and I got the impression that there was no intent to mislead shareholders here. In fact, CEO said that he is quite happy for share price to be low so they can keep buying shares and increase EPS by reducing share count as well as increasing earning.
So although it was poor from management but I am happy to keep it aside and consider that thesis is still intact and I quite like the frankness of Management on the call FWIW.
Happy to hold.
Nice analysis @Valueinvestor0909.
I really like the unpolished candour of the presentation and Q&A responses. (Maybe something about being a Brisbane-based firm,...think $NCK, $JIN!)
(That said, I hate the formatting of their slides. And they have to work on the QC process, as one slide has two CEOs - extra slide on the call, not in the release! And revenue described as "uncontracted" is contracted, even though the voiceover made clear what it was!)
In the Q&A I asked about capital allocation and product development, and I thought the response and other information was informative.
First, in the presentation they made clear that some of the software development is client-driven. This has been said previously. The client's request the improvements, $RUL delivers it, the client pays for it and gets first use, but $RUL has the IP and can integrate it into their product. Nice. Getting someone else to pay for your product development is the best way: a) Its customer-driven and b) you don't pay.
On the capital allocation question, CEO Richard said that once a product is in the market, they focus on selling it and not changing it. He noted that several years ago the focus was development but now its exploitation, which is why capitalised development will continue to be low.
He also made comments that they are on the look-out for acqusitions, but that in mining "there isn't much out there". He said most of the deals have been done, and there isn't that much competition - hence their pricing power. He then went on to say that the Board consider $RUL grossly under-valued, and so the best use of capital is buying back shares.
So a robust reponse. But that said, product companies innovate or die over time. So I still have a bit of a question mark about whether they are building a long-term sustainable position to be the global leader of specialist mining software solutions. Maybe they could quantify and give visibility of how much total development work is going on. For example, RW at $WTC always quantifies $ and design changes, and $ALU have been innovating like crazy over the last 5 years. Also, I know for a fact that Tier 1 miners are spending a lot on mine automation, electrification, digitalisation and ...yes ... AI exploitation. So I guess I just can't shake the feeling that I expect to hear $RUL talk more about product development.
Nice work.
I'd just add that since the contract was cancelled adding it to the 2024 subscription is probably not the most accurate. I think I'd leave the 2024 1H as it was and just remove it from 2023 as the fairest way of representing it (it stops it being subscription revenue and turns into a one-off payment)