My interest was piqued in RDY after a mention by Maquarie, citing it as good value relative to most other SaaS companies.
At first glance, and even after a deeper dive, RDY appears to be very much a smaller version of Tech One. The average annual revenue per customer is around $40K, so the company definitely plays in the SME market rather than the Enterprise market, where annual revenues between $100K and 1 million are more the norm.
“ReadyTech operates in multiple large addressable markets which are ripe for digital transformation.”
Why I like the company
It is squarely in my zone of competence, since I have worked in software / SaaS organisations for decades
4,600 customers, with 96% customer retention
Its products cover three distinct markets, providing multiple growth opportunities:
Education and Work Pathways - software for student engagement, curriculum management, online learning, with customers including Bendigo Tafe and Kangan Institute, the Commonwealth Bank’s Registered Training Organisation - 17% growth in revenue to $25m. 1200 customers in this segment, market size is approx. 4500 institutions.
Workforce Solutions - HR and payroll for medium sized organisations in hospitality, aged care, logistics, agriculture (basically anyone they can sell to) with customers including De Bortoli and Tasco Petroleum - 13% growth in revenue to $20m. Addressable market in ANZ is $2.4b
Government and Justice - a new division coming from the acquisition of Open Office in March this year, who provide software for local/state government and justice case management. 170 local council customers, with a target market of 500 in Australia alone. Average revenue per customer is highest in this segment, $145K. Revenue since acquisition by ReadyTech $5m, proforma annual revenue is $18m
With the Open Office acquisition ReadyTech now has a beachhead into the UK market - Open Office has “over 400 clients across Australia and around the World.”
Founder-led, Marc Washbourne has been CEO since 2006, has 4m shares (but there are 102m issued)
Profitable, just ($2.1m, compared to $3.8m last year)
86% of revenue is recurring
Comparative metrics for TNE (at 31/12/2020) and RDY (at 31/06/2021) - attached (I couldn't figure out how to insert this table inline).
Risks:
Competition, TNE being the obvious one, moving downmarket from Enterprise, and Microsoft (Dynamics) moving upmarket from small businesses. many more.
Collapse of demand. Most of their customers (excluding those in Workforce Solutions) rely on the public purse for their finances. Budgets for digital transformation could disappear at a stroke with a change in Federal or State government policy.
Given RDY has co-existed with TNE for 21 years I get the feeling there is room for both in the market. TNE has more market presence, but now that RDY is well capitalised they are investing more in sales and marketing. RDY is growing revenue faster than TNE, but the 2026 revenue targets of the two companies reflect similar multiples of their current revenue, with RDY being slightly more aggressive (in % terms) in their growth target. Although TNE and RDY operate in the same markets, such as local councils, I think they offer subtly different capabilities, with TNE’s focus being ERP and RDY’s being case management.
I can’t really draw any conclusions from the relative valuations using P/S and P/E. P/E for RDY probably doesn’t reflect long term trends since earnings were depressed this year after paying out $57m to acquire Open Office.
In conclusion, I am sufficiently interested in RDY to put it into my Strawman portfolio, just as a means of keeping an active watch. I don’t however have a high enough conviction to invest real money, mainly because I am already a long term holder of TNE and I don’t see the need to own the second best (if that is indeed what RDY is) when I already own the best in a given market.
