28/2/20 Half Yearly Report and Accounts
As always RFT released after market on the last day of reporting, but overall a pleasing result that completely validates the investment thesis.
Revenue up 12% and reported profit up 18% however RFT expensed some options issued to employees under their incentive scheme for $630k. These options exercise at 7c per share so require strong share price performance to be exercised. Adjusting for these options and profit before tax was $2.9m or 83% growth.
RFT continued to pay a high level of tax (41%) which I will try to chase up but if they paid a normal 30% they earned about $2m NPAT which puts them well on track to exceed my initial forecast of $3.5m.
The other big positive was the unwind of the inventory build-up from the last period with operating cash flow of $3.2m leaving a strong cash balance and allowing the company to take on some extra debt for the expansion of their manufacturing facilities. Also corporate costs remained flat at $1.9 which allowed margins to expand.
The one negative is EV revenue growth wasn't spectacular for the period up 9%, however EBITDA margin for the segment increased from 21% to 24%.
Operationally the release of two new products (bi-directional charger and 50kw DC home charger) provides further avenues for growth.
After Release of the Dec 2019 Half Years Figures, which were good, Looking forward to the new Bi-Directional Charger and 50 MWH Charger with the Increase in Production capacity created from the New Factory ( doubling the size so hopefully doubling the capacity), Opened if I recall ( from the 2019 AGM) just before the AGM could increase sales and Profitability significantly.
My Simply Wall St Analysis program puts a Fair Value at 15 Cents per Share this and their generally favourable rating is heartening.
what is everyone's thoughts on the below?
In December 2018, Rectifier Technologies Ltd (Company) signed a Preferred Supplier Agreement with Tritium Pty Ltd for the supply of 35KW high-voltage and high-efficiency power supply units for a contract period of 24 months with an option to sign a further 12 months after the expiry of the initial 24 months term of the contract.
The contract included a 12-month period of exclusive supply and purchase to be evaluated annually. It has been agreed that this exclusive supply and purchase period will not be extended, allowing Rectifier Technologies to identify and supply to 35KW high-voltage and high-efficiency power supply units to new customers for the remainder of the contract. It is not anticipated that the ceasing of exclusivity under this agreement will have a negative impact on Company sales.
I thought the AGM was a professional expansion of the current position of the company, in particular, it's doubling of both its R & D Facility and the Manufacturing Plant in Malaysia..
And the R & D update was on the Money.
Profitable business from existing operations that has built out the necessary infrastructure to expand into new fields of electric vehicles and data centres. Recently moved manufacturing to a bigger facility that triples production and opened a new sales office in Singapore to support a global sales network. High levels of R&D spend all expensed has masked underlying profitability but has resulted in the creation of several innovative new products including OEM electric vehicle chargers that can be white labelled and modular charging units that can be combined to create high voltage fast charging.
Confirmed relationships with major players in the electric vehicle industries such as Efacec and Tritium who are focused on the fast charging area, the next growth sub-sector. Management are notoriously quiet but it gives patient investors the chance to buy cheaply in quiet periods for the long term as the company continues to kick goals.
The AFR yesterday announced a new deal between Tritium and Box Energi to install its rapid chargers at 2,500 charging stations across the UK.
The mind-boggling potential here can't be understated. According to the article, Tritium have installed 3,000 fast-charging stations to date world-wide, and this single contract will potentially double that number:
"Many of the sites will have two Tritium Veefil-RT 50kW DC Rapid Chargers, which the company says is capable of adding 100km of extra range in 20 minutes of charging."
Needless to say, this contract would mean RFT is undervalued at recent SP levels, but it's very hard to value the company based on press releases that may not trickle down to us. I won't change my valuation until we see this play out either in the full-year report, or as a separate piece of guidance, but it's tempting to double my current valuation on this one piece of news alone for the revenue it would potentially generate over the next 5 years!
13-Apr-19: Just to add to these thoughts about not buying into temporary hype: Marcus Padley mentioned RFT yesterday (12-Apr-19) in his daily "Marcus Today" newsletter. He also mentioned them as a speculative buy on Thursday 4th April. RFT closed at 3.1c the day before (3rd April), and are at 5.3c now, some 71% higher - in less than a fortnight. Here's what Marcus wrote yesterday:
"One issue that has emerged as an election issue is electric vehicles. Contrary statements from both sides. Shorten will steal Tradie's utes. Toyota was quick to point out that it will have EV utes. 50% of cars sold will be electric etc. The key to EVs is the time it takes to charge a car. Even Kyle and Jackie 'O have got into the act after asking Shorten how long it would take to charge a car. However Shorten was spot on. Eight to ten minutes was his answer and quickly attacked BUT, there have been huge strides in fast charging. Australian tech companies have been at the forefront of this charge (pardon the pun). An unlikely ally came to Shorten’s rescue. Lucy Turnbull tweeted that a new fast e-vehicle charger called Terra High Power can give an EV a 200kms range on an 8 minute charge. The coalition, happy to forget such ground breaking examples of the technology, is itself funding installation of fast chargers in NE Victoria. The company plans to have 22 chargers in Victoria by the end of the year.
As usual technology seems to be running at a far faster pace than the politicians can keep up with. Porsche and BMW are unveiling a prototype 440kW electric car charger complete with cooling system that delivers 100km of charge in just three minutes.
There are many companies in the fast charging space. Vehicle costs and choice is a factor and costs are falling and European car makers are pushing hard with electric plans. Not surprising give the issues now with the dirty diesel. A company I have highlighted as a potential winner from this, is Rectifier Technology (RFT). I recommended it at 3.6c as a Speculative Buy back on 4th April. Now heading towards 5c. The increased political focus on fast charging can only be a positive for the company. It is a preferred supplier to Tritium which is a Brisbane based leader in fast charging technology. Can’t buy Tritium but can buy RFT. Maybe still worth throwing some speculative funds at the one. Not sure our humble recommendation was responsible for the kick. Would like to think we have that power. But probably not."
Perhaps not, but Marcus' newsletter has a wide readership and is very popular, and I don't think he's done the share price of RFT any harm. The question is now whether they've gotten ahead of themselves, or are they just moving closer to fair value? They look like they might have gotten ahead of themselves, and I do hold a small parcel of RFT.
Of course, most of the gains (1.3c of the 2.2c rise since their 3.1c close on April 3rd) have come in the past two trading days since Andrew / Strawman mentioned them on Your Money (TV) - RFT have risen 32.5% since that segment was aired, which can be viewed here: http://www.yourmoney.com.au/wealth/investment/3-big-advantages-of-small-cap-stocks/
RFT is mentioned from the 6:50 mark.
Mind you, the other two companies that Andrew mentioned haven't had such positive moves. EVS hasn't moved much, and ANO is down almost 10%. I think EVs and anything to do with them is certainly becoming a popular theme.
An update is long overdue here
Tritium had their IONITY contract extended back in May from 100 sites to a total of 220 sites, with the possibility of further. Tritium is now the largest supplier to the IONITY network.
The original design concept for IONITY was for Halo chargers. Announced Sept-11, these are now a reality following 18 months of development by Tritium in co-operation with others.
Preliminary Financial Report
RFT released their preliminary financial report. Without the full audited annual report some details are lacking, but there is enough to get a feel for the performance of the business and where it is heading.
Based on the 1H19 result I was expecting RFT to report NPAT around $2.5m, so at first glance the FY19 result of $2.1m was a bit underwhelming. However digging deeper the miss was almost entirely due to a higher tax rate in the second half (28% vs 45%). Adjusting for a normalised 30% tax rate and RFT would have reported NPAT of $2.4m, much closer to expectations.
Interestingly though the breakdown of this result was again different to what I expected. I had forecast for revenues to remain flat to slightly up based on the announced contracts in the months prior, however revenue in the 2H19 was down on the 1H19 ($9.6m v $8.2m). This is a concern and something to be monitored, but shouldn't be a complete surprise as you would expect RFT's revenue to remain lumpy as it continues to be dominated by one segment (EV's), one customer (Tritium) and at the mercy of large contracts.
The highlight of the 2H19 result was the strong profit margins, with the EBITDA margin expanding from 18% in the 1H19 to 24% in the 2H19. The most impressive aspect of this is expanding margins even as revenue fell, suggesting there may have been some one-off costs in the 1H19 to service the large jump up in revenue, perhaps relating to manufacturing expansion or sales and marketing initiatives.
One concern out of the 1H19 report that rectified (pun intended) itself was the jump in receivables to $4.5m. This unwound in the 2H19 back to $1.4m, however working capital was still squeezed due to a sharp increase in inventories with it increasing by roughly the same $3.1m, from $2.5m to $5.6m. Unfortunately we need to wait for the audited annual report to get a breakdown on the inventory (raw materials v finished goods) to get a feel for how soon we may see that inventory turned into sales. Nonetheless the inventory jump meant operating cash flow was weak again, just $650k, well short of reported EBITDA.
Looking at metrics, ROE was a strong 29%, while incremental ROE was 95% though coming off a low base. Management commentary was typically understated, simply stating that they expect the improvement in sales to continue.
Updated FY19 Result Guidance
RFT today came out and stated FY19 NPBT will come in between $2.5-$3.5m. At the top end of that range it will meet my forecast for $2.5m NPAT for FY19. I suspect this is likely as the company is generally conservative with their commentary.
On another note it will be interesting to see how the company could change it's guidance from $1.9m in the price query response to $2.5-3.5m today. The annual report may shed some light, otherwise it will definitely be a question for the AGM.
I see two main risks with RFT.
Firstly and most immediately, all their eggs are in one basket, the EV charging OEM Tritium. Currently they have an exclusive supply agreement for CY19 but if Tritium doesn’t renew this agreement or if Tritium is unable to win more orders, RFT’s revenue evaporates.
There is also the possibility that even if the agreement is extended, Tritium will squeeze RFT on the price thereby reducing RFT’s margin.
The second and more medium term risk is technology. RFT and Tritium are small companies but they are competing against very big companies like ABB, Siemens and Schneider Electric. These big companies already have strong brand names in power electronics, global coverage and most importantly, huge amounts of money to invest in R&D. While RFT and Tritium appear to have a competitive offering currently, there is a risk that they will not be able to keep up with the “big boys” and their greater scale and R&D dollars over the longer term.
If I see the Tritium agreement not renewed, RFT failing to diversify into other EV Charging OEM’s or Tritium struggling to win contracts due to an inferior offering I’ll be heading for the exit.
I'm having trouble reconciling the fact that this new 50kW EV charger is open to 'Expressions of Interest' from everyone on that Google form when the bulk of growth relies on an extension to the exclusive supplier agreement in place with Tritium next year.
My suspicion is that Tritium are bringing things in-house.
To add to that suspicion, this ad was posted a few days ago on Seek, and I had a Sparky friend look at it:
Whilst he wasn't able to confirm outright that this was for the design and build of DC rectifiers, he didn't rule it out, saying that it was too 'broad' in its role description to be certain.
I can't help think however that recent Tritium cap. raises from private equity and what looks to be an ever-increasing R&D spend suggest they are cutting their reliance on third parties.
Add to this recent insider selling at current prices, and the next year looks more uncertain than I'm willing to accept.
I've sold most of my holding on these signals in recent days and am closing my position on Strawman, but I hope that I'm wrong and that I'm reading too much into the tea leaves. I'd be more than happy to dip back in on good news, however, since there is a lot to like about the company in general.
Would welcome seasoned investors' views on this in the forum.
Tritium has just completed a $30 MAUD capital raise from it's existing (private) shareholders and founders to support increased production for it's fast growing customer base.
The fact that they are expanding capacity and managed to fund this entirely via existing shareholders and founders is a very positive sign from my point of view.
Should also mean continuted order growth for RFT.
Again on the RFT = Tritium theme, here is a nice article on Tritium that mentions their current market share and future pipeline.
"the company (Tritium) now accounts for a fifth of all direct current (DC) fast-chargers for EVs sold in Western countries, with 3,000 systems distributed to date and a sales pipeline of at least $200 million."
Article in this weekends Australian.
Electric cars — a value assessment
Electric cars are suddenly an election issue. The Labor Party has advanced an ambitious plan to make 50 per cent of all cars on the road electric in a decade.
But the Coalition has expressed deep scepticism, with Scott Morrison suggesting “it’s not going to tow your trailer, it’s not going to tow your boat”.
In reality, both parties have advanced policies to encourage electric cars.
To make full disclosure here, I’m a financial adviser, an active investor and a long-time car fanatic. I’m only interested in the investment case — the value proposal of electric cars.
How do the figures add up? Do the ongoing savings of an electric vehicle outweigh the higher upfront cost? Does it make sense, not just from a green perspective but from a financial perspective.
Today, the market is buzzing and almost every major car manufacturer has plans to release an electric model. Tesla, the brand that is synonymous with electric cars, has led the push.
David Coleman, a Sydney lawyer who owns a Tesla model S with a 75kWh battery, says: “If I charge the car at home at night using off-peak electricity at a rate of 10c per kilowatt hour, it costs $7.50 to charge the car overnight.”
With a full battery of electrons, Coleman can drive 400km in his Tesla, meaning the energy cost to drive every 100km is $1.88.
Compare this to the average fuel consumption of traditional petrol engine cars of 10.6 litres per 100km. With fuel prices at $1.30 a litre, the fuel cost to drive is more than seven times higher than that of the Tesla at $13.78.
Rudi Engelbrecht, a director of multinational technology company Tau Solutions, who also owns a Tesla model S, says: “Even though charging at home results in a much lower operating cost compared to fuel-powered cars, this cost can be reduced even further by charging the car from publicly available chargers.
“I park in the city and my car charges for those seven to 10 hours that I’m in the office. This keeps the car topped up, meaning I hardly have to charge from home.”
But what about the other costs?
There are obvious issues such as maintenance, insurance and the less obvious ones like battery replacement and depreciation.
A European survey of Tesla drivers found that after 250,000km, the battery still had 90 per cent of battery capacity available. So the battery in an electric car is probably going to last the life of the vehicle, no different to the longevity of a fuel-powered engine.
With depreciation, the first lot of Teslas sold in Australia from 2015 are still selling for about $80,000, compared to a brand new model at $140,000 on road.
That’s a depreciation rate of about 13 per cent a year. Petrol cars drop on average by 19 per cent in their first year and 15 per cent in their second and third years.
It’s surprising, because technology is progressing at a breakneck pace for electric cars, but the secondary market for older electrics is still buoyant.
With regard to maintenance costs, Coleman says: “There’s just a whole heap less moving parts in an electric vehicle compared to a fuel powered car.
“This means there is a lot less wear and servicing is a simple exercise of tyre check, brake fluid check and air-conditioning check.
“No changing oil, fuel filters, spark plugs and so forth. Even brake pad replacements are rare because the regenerative braking system minimises the use and wear on the brakes.”
But how do the numbers look?
RAC WA have looked at the total operating costs of different electric and fuel-powered vehicles over a five-year period assuming 12,000km driven per year.
They found that it is still cheaper to operate a Holden Commodore or Toyota Camry over a five-year period compared to a Tesla or a lower-cost BMW i3.
Although the operating costs are much lower for the electric versus fuel-powered, the sting in the tail comes in the holding costs, namely depreciation and interest.
The depreciation percentage on electric cars may be less than petrol-powered, but given the higher purchase cost, this equates to holding costs that are almost three times higher compared to fuel-powered equivalents over a five-year period.
RAC WA found that when factoring every cost relating to a car, the four-cylinder Toyota Camry came in at an average weekly cost of $194, while the V6 Holden Commodore came in at $236 a week.
The Tesla Model S P75 cost $465 a week and the BMW i3 $287 a week. The Tesla’s high weekly cost was due to almost two-thirds of the cost relating to interest and depreciation.
With the increase in competition in the electric-car market, the latest era of electric cars are becoming cheaper, with vehicles such as the Nissan Leaf and Hyundai Ioniq about $50,000, not to mention the Tesla model 3 that will come well under $100,000.
26/3/2019 - New contract win for Tritium.
Ireland’s first privately-owned electric vehicle (EV) charging network, EasyGo.ie, has launched the country’s most advanced publicly available DC charger, a Veefil-RT 50kW DC rapid charger developed by DC charging technology specialist, Tritium.
EasyGo.ie "also announced plans to install 88 of Tritium’s DC rapid chargers by the end of 2020, with at least 20 to be deployed by the end of 2019"
Should result in another injection of orders for RFT showing up on the books in FY2018 and 1H20 results.
RFT's eggs are currently all in the Tritium basket so it's useful to look at Tritium as a proxy for RFT.
Given Tritium is an Australian company that manufactures in Australia they have an advantage when it comes to contracts in Australia, particularly if they are government funded as government contracts usually come with a mandatory local content %. At the very least an Australian based supplier is preferred.
Although it must be pointed out that they lost (to ABB) the tender to supply the High Power DC Fast Chargers for the first two sites of the network being built by ChargeFox. Picking up only the smaller 50kW units.
However the big potential is really overseas where they will lose that advantage and be competing on a level field with large global players like ABB, BTC Power, Efacec and Signet.
The future and real money is in the High Power fast chargers and their biggest global competitor is ABB who is currently the global market leader with >10,000 DC fast charging stations installed world wide. Their Terra HP series of High Power DC fast charger's is the market leader from a technology standpoint.
Tritiums lack of success in the lucrative High Power sub-segment concerns me.
They did not win any of the 2,000 unit DC Fast Charger contract for Electrify America. They lost the High Power units in ChargeFox's Australia network and despite winning the two Ionity pilot sites, lost the 3/4 of the main contract.
I hope they can rectify (excuse the pun) this situation and gain more market pentration in this sub-segment.
28/02/19 Half Yearly Report and Accounts
RFT reported their 1H19 results, with the headline numbers extremely strong. Revenue increased 141% to $9.6m, with NPAT growing 341% to $1.1m.
Margins were interesting, with the gross margin falling from 54% to 35% while EBITDA margins grew from 11% to 18%. I believe the key reason for this is because some employee expenses are attributed to COGS but this isn't clearly broken out. Regardless, the business is scaling nicely.
Growth was driven by the Electric Vehicles segment, which grew 634% to make up 70% of revenue (from 24%). Non-EV revenue was flat at $3m.
The only negative of the result was a sharp rise in receivables ($3.1m) which led to a $1m operating cash outflow. Monitoring this moving forward.
Management outlook was positive, both for continuing growth and bringing new products to market. Based on rough calculations on contracts announced, it appears some confirmed revenue will flow through in the 2H to support these claims.
An update on the original post below - wrong on all counts!
Rectifier released a 50kW EV Charger Module which is a more powerful version of the 35kW module that Tritium are (exclusively) using for their 350kW chargers. Note that there was no ASX announcement for this.
Original post on Monday 16-Sept:
"We will release the EV 11kW bi-directional product to the market in the near future and pursue further opportunities for power modules in this market." (last page, section 14.2)
So no news until tomorrow.
Well, is it a possibility that Rectifier could supply Chargepoint the V2G home charger? Would the RFT charger fit into the current Chargepoint offering?
The Rectifier charger is 11kW (on 16A input) compared to the current Chargepoint charger (7.7kW @32A or 3.8kW @16A) , so it would be a step up. It sounds pretty small next to 350kW or 50kW chargers we are accustomed to but remember these have a different purpose and cost significantly more. The RFT unit also offers the distinct advantage of being bi-directional and unlocks much potential at home, so yes it could fit into the Chargepoint range.
So if this speculation is correct, is it big?
I guess we'll see on Wednesday.
Tritium Veefil-RT 50kw DC x 2500 order win from UK Box Energi
Announcement on 19 July 2019 by RFT forecasting NPBT = $1.9M.
Maintaining 30x PE.
Lets assume tax is 15% as there may be historical tax losses to bring to account.
Valuation = 30 x 1.9M x 0.85 = $48.45M
Shares on Issue 1,388,540,602 (fully diluted)
Share price = 3.4c
Have closed position and sold all shares. Will look at buying back in once share price pulls back and more clarification around earnings is provided by company.
I recently received this email.
It may well be SPAM, but it is a barrier that will impede the adoption of EV's
"Interesting facts by an electrician.
I recently did some work for the body corporate at the Dock 5 Apartment Building in Docklands in Melbourne to see if we could install a small number of electric charging points for owners to charge their electric vehicles. We had our first three applications. We discovered:
These advocates of electric vehicles only by 2040 are completely bonkers. It takes 5-8 years to design and build a large coal-fired power station like Loy Yang and even longer for a Nuclear one (That’s after you get the political will, permits and legislative changes needed ). Wind and solar just can't produce enough. Tidal power might but that’s further away than nuclear
It's just a greenies wet dream in the foreseeable future other than in small wealthy countries. It will no doubt ultimately come but not in the next 20 years."
Given that RFT’s growth is being driven by the EV charging segment which represents 70% of it’s revenue (as per 1H19 results) I’m only going to address this Bull Case on that market.
According to the 2018 market research report "Electric Vehicle Charging Stations Market by Charging Station (AC Charging Station, DC Charging Station), Installation Type (Residential, Commercial), and Region (North America, Europe, Asia Pacific, and Row) - Global Forecast to 2023", the electric vehicle charging stations market is expected to grow from USD 5.30 Billion in 2018 to reach USD 30.41 Billion by 2023, at a CAGR of 41.8% between 2018 and 2023. Key factors such as government funding, subsidies, and incentives, growing demand for electric vehicles, growing concern toward environmental pollution, and heavy investment from automakers of EVs are driving the electric vehicle charging stations market.
DC charging stations, which require AC to DC rectifiers, held the largest share of the electric vehicle charging stations market in 2017. Active participation from EV manufacturers in expanding DC charging networks for EV owners is one of the primary factors for the high market share of DC charging stations. DC fast charging installations are expected to continue to hold the largest share of the electric vehicle charging stations market between 2018 and 2023.
While RFT’s rectifiers are a sub-component for DC EV chargers so their TAM is smaller than the numbers given above, this is still a large and extremely rapidly growing market providing huge upside potential for RFT if their EV charging OEM partners can capture even a small percentage of it. The “rising tide lifts all ships” as they say.
While Tritium won the Ionity contract for the first two pilot stations in Germany, the bulk (300) of the Ionity contract for 400 stations (comprising 6 chargers each) was won by their competitor ABB.
While a contract for 100 x 6 = 600 chargers is great, it concerns me that after winning the two pilot stations they were then only awarded 1/4 of the main contract.
-RFTs revenue stream currently almost solely reliant on Tritium (single fail point)
-If Tritium were to loose contracts or fail to gain new ones, this would significantly reduce RFTs revenue growth
-Tritium has an exclusive supply contract until end 2019CY for RFTs recitifiers. If this wasn't renewed then RTFs revenue growth may reduce
-Performance failure: Inability of RFT to deliver orders on time or a technical issue with its products would damage relationship with Tritium
21/12/18 Preferred Supplier Agreement with Tritium
RFT announced a preferred supplier agreement with Tritium effective from 3 December 2018. The key part of this announcement is the exclusive supply of 35kW modular rectifiers for use in 120kW and above DC fast chargers. This exclusive arrangement is for one year, with an option to extend.
Given Tritium's desire to lock in RFT's products exclusively to prevent competitors from using them, it makes M&A activity between the two seem a viable option in the future.
1/10/18 3.4 Million USD in product orders received
As forecast in their last contract announcement, RFT has received a second order from Tritium for their modular 35kW high voltage products. This order is for $3.4m USD and will be delivered by March 2019.
Commentary that further orders are expected this calendar year was included again.
No New Announcements for a while on the relationship with Trinity and whether the new 50 KW Rectifiers are for them, or are they ( Trinity) developing their own?