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Valuation of $0.230
Added 5 months ago

Q1 4C and Valuation Review (25/10/23)

Review of todays 4C for Q1 and update to valuation.

Summary of 4C:

·        Operating cash flow -A$1,6m but per below chart, this is a highly seasonal business and Q1 is the worst, Q4 the best so YoY comparisons are the most relevant.

·        YoY revenue for Qtr up 13% for recurring, 11% for subscription (59% in US)

·        YoY qtly receipts +9% and costs down -7%

·        US and AU housing market sales down 17% (tough market currently).

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Key Takeaway: If quarterly cash flows follow historical patterns, then I would expect to see the first positive operating cash flow by year end and FY25 is likely to be operating cash flow break even. So current cash position of A$4.95m should see them through.

Valuation Adjustment:

·        Trimmed sales growth due to current challenging market in particular promoter revenues which is a less attractive part of the business that they are scaling back which lifted margins so gross margin remained similar.

·        Cost adjusted to growth assumptions: grow at half top line rate of growth.

Investment Thesis Note: Value inflection in coming 2 years depends on continued growth and also continued cost discipline for potential 20% EBITDA margins by 2027 – but need to watch what management does once they reach cash positive and profit – they could up “investment”…

Value Range: $0.15-$0.32 (from $0.21-$0.33 done 19/4/23)

Disc: Own in RL

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#Valuation
stale
Added 3 years ago

This is the first time I have looked in detail at RMA Global (RMY) who operates the Rate My Agent website, and I have taken a small position because as I outline below, it looks promising.

 

The business: RMY is the leading online digital marketing business for residential real estate agents in Australia and New Zealand with a fast-growing US market position.  Transaction data and reviews can be used by agents to build their profile to market themselves, or by vendors to compare agents and find an agent to sell their property. The product offering also allows for the rating of agencies on leased properties as well as mortgage brokers.

Revenue: It’s primary revenue stream is agent Subscription (69%) which gives the agent a prominent profile and access to marketing products and services.  In addition, Promoter revenue (28%) comes from enabling agents to promote their digital profiles through various third-party platforms (Google, Facebook, Instagram, etc).  The company classes both of these as recurring revenues, which I can accept for subscriptions but is a bit of a stretch for the promoter revenue. 

Margins: Subscripts are 100% margin, because there are no direct costs allocated at this stage but even if some was it would be 90%+ so very good.  The Promoter revenue is around 40% margin, so less attractive but an important value add service for agents and growing quickly.

Growth: Following a flat FY20, revenue grew 52% in FY21 with the AU market up 22% for subscription and 144% for promoter revenue.  Added to this was NZ +185% and US +489% revenue off very low bases.  The key metric to track is what they call “Claimed Agent Profiles”, all agents get a profile but it’s only when they “claim” them that they can become a paying customer and may then take up a subscription or participate in promoter activity.  US Claimed Agent Profiles grew 121% to 125.8k.  Customer reviews are also an important measure of engagement and value, these were up 344% to 132.8k in the US with a solid 60%+ of customers providing reviews when prompted.

US Market: RMY is doing well in ANZ but it’s hitting growth limits and needs US growth to get to scale and become profitable and cash generating.  However, the US market is different to ANZ in many ways so the go to market is different and Mark Armstrong (Co-founder) stepped down as CEO to focus on the US strategic growth which involves engagement of key Multiple Listing Services (MLS) and Brokerage partnerships which cover most agents in the US.  Traction appears to be occurring and dwarfs the ANZ market – see the chart at the bottom of the attached valuation.

Risks: The cash position is solid with over 1 years cash burn available, but expect additional capital raisings and for it to remain FCF negative for several more years.  Beyond the normal risks with a business like this is the issue of REA and similar going head to head with RMY, could this become a feature product?  Possible, also possible that someone like REA buys out RMY especially if they gain a significant foothold in the US

Valuation: The IV of $1.01 in the attached DCF is a bull case based on the following assumptions:

·         Revenue: Solid ANZ growth, doubling FY21 by 2025, 3.5x by 2030.  With 73% of active agents claimed the growth will mainly be via expanded use and services. The real drive is US growth with only around 10% of the 1.3m agents claimed to date.  I expect it will represent 50% of revenue by 2024 and 85% by 2030 as US market penetration increases to 60%.  In total sales reach 20x the FY21 sales by 2030, taking into account market penetration and product expansion such as Mortgage broking which has already started.

·         Margins: I assume they stay around the low 80% mark due to product mix between subscription and promoter, but opportunity exists to lift margins with scale.

·         EBITDA, NPAT and FCF positive by 2025 on the assumption that operating costs grow at half the rate of sales.

·         Sharecount: Allowing for a 10% increase in FY22 for a capital raise then 1% each year for ESOPs, note that share based compensation is small and the board own 44% of the company so its in their interest to be anti-dilutionary and move to profitability.

 

Summary: I see this business at a key turning point as it grows it’s US presence, this should see the parabolic growth in the US start to dominate and accelerate total company growth.  The market is yet to recognise this due to it being hidden by the more mature slow growing Australian business.  The company is strongly motivated to drive US growth and address competition with the board holding 44% of the company and the two co-founders still very active.  I class my valuation as a probable bull case, the base case is probably around current market value and not worth the risk adjusted return

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#Business Model/Strategy
stale
Added 2 years ago

The company, formerly known as Digital Castle provides data on real estate. It offers sale results for residential real estate agents and agencies, as well as reviews of agent performance from vendors and buyers of residential real estate. 

With most of the revenue currently from Australian operations, the company has also looked the USA and across the ditch at NZ.

Chairman and NED, David Williams has been on a recent buying spree picking up more than $300,000 worth in shares.

While the company reported a solid full year result with reduced losses (19c loss per share vs 24x in FY20) improved revenues (11.4m, up 54% from FY20) and improved control over expenses.

What is not so good - it in the last 3 years EPS has fallen over 15% per year. At least the share price has not followed the earrings decline, down about 8% in the corresponding timeframe.

What I also don’t like are rate me sites and while I have not delved into it here, mostly due to gamification. My ridiculously narrowed research looked at three agents I have used in the past few years. Two were listed on RMY, with one showing as the top performer for the area, and one, the strongest agent I know, could not be located.

Personally, I find it interesting that RMY positions this data as something real estate agents and mortgage brokers can use reviews to promote on social media. If any agents have a social media focused and strength, they are unlikely to use this data as a source. 

I also think the current real estate boom may be skewing things. Almost every agent is a rock star now if they can get listings. When the real estate wind changes, and it has to someday, many will exit the market leaving just the proven few. 

As well as significant insider ownership, a strong balance sheet and a FY22 target to be cash flow positive count on the plus side. 

Cannot make my mid up on this one so for now, I remain firmly on the sidelines. 


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#Q3 4C and Valuation Review (19
stale
Added 11 months ago

Growth remains evident (6% QoQ, 17% YoY), but understandably impacted by market conditions and likely to continue to be hamstrung, BUT: Davey went on to say, “We have experienced a number of cash flow positive months and are on track to becoming cash flow positive on a consistent basis.”

I see this as believable given cash operating costs have remained relatively stable over the last year and if customer receipts hold up or grow the currently -A$465k FCF for Q3 could well become neutral or even positive. Which would be fine with A$6.8m cash on hand to protect the business from temporary cash issues.

Valuation (A$0.21-0.33): Base case

The AU and NZ business are reaching maturity with growth dropping to single digits it’s the US business that is scaling from a low base that will provide a double-digit growth opportunity for several more years. I have curbed my sales growth expectations from a year and a half ago (and valuation down from $1.01) given the obvious change in market and economic expectations since, but still retain an expectation of growth driven by the US and opportunity presented.

Cost control (growing at half the rate of sales) and improved margins from a higher proportion of subscription revenue are assumed with operating break even by FY25 may be justified by the above expectations of cash flow positive on a consistent basis. If it can reach a disciplined balance of pursuing growth and controlling operating spend we may have a good business in a few years.

The valuation range is EPS in FY28 discounted as the lower value and DCF the higher. It’s a base case with plenty of up and downside opportunity to get back to my $1 valuation or down to Zero.

Disc: I own – only a small holding, willing to let it run but not willing to add to it at this time.

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Valuation of $0.400
stale
Added 4 years ago
Tech company that connects agents with sellers/buyers and allows comparison of agent performance. Scalable platform, global opportunity, launched Australia/NZ/US. Products give agents options to share and promote their performance and reviews and vendors to find the best agent: Agents can share a review across multiple platforms; Google, Facebook and Instagram Domain is incorporating Rate My Agent reviews into their site. Company's strategy is to increase paying agents to 50% by 3Q FY20. As the US entry matures, they intend to launch in Canada and other countries.
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