Rectifier Technologies took a severe hit to the share price today, down 8.3% to 3.3cps in this morning’s trade, a 12 month low.

There’s been no news from RFT, which could be the problem, however it is more likely to be feeling Tritium’s liquidity pain and the sell off may be in response to the AFR article today titled “Tritium asks Queensland Government for up to $90 million Bailout.” I believe RFT relies on Tritium for about half its revenues (stand to be corrected). If Tritium were to fail this would have an immediate impact on RFTs profitability.

The AFR article is copied below:

Embattled Brisbane fast-charging company Tritium has asked the Queensland government for an equity injection of up to $90 million as it tries to deal with its dire liquidity issues.

While the company has warned it may be forced to close its Australian factory and move its headquarters overseas to ensure its financial survival, it is understood the request to the Palaszczuk government is unlikely to be successful.

Tritium chief executive Jane Hunter said she had been in discussions with all tiers of government to try to help the company, which listed on the Nasdaq in the United States in 2021 with a “double unicorn” $2 billion valuation but now has a market capitalisation of $US38 million ($59 million).

“It’s been extremely difficult in Australia to secure sources of capital,” Ms Hunter told The Australian Financial Review.

“To keep sovereign manufacturing capability, Australia will have to put money and legislation into it because just like [funding under America’s Inflation Reduction Act], that’s the only reason people are into factories over there.”

Ms Hunter said the Albanese government’s $3 billion National Reconstruction Fund that will start next year will be too late for Tritium, which has been issued a show-cause notice about its underperformance on the American bourse.

“We’ve had discussions with all levels of government. Unfortunately, the National Reconstruction Fund won’t be ready for us to access it. It will be too late for us,” she said.

“I think there’s a possibility that the CEFC [Clean Energy Finance Corporation] could come in, but we have to have a foundation investor and they have to be Australian.”

ENDS

Disc: Held IRL (0.8%) SM (3.7%)

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.

Source: AFR

The introduction of Australia’s first emission standard will help to accelerate the uptake of electric vehicles in Australia. More electric vehicles will require more charging stations and Rectifier Technologies is likely to be a beneficiary of the new policy. Subscribers can find the full story in the AFR. I’ve copied part of the story below.

Disc: Held IRL (0.5%)

Labor launches Australia’s first emissions standard to boost EV supply

Jacob Greber, AFR

“Carmakers will be penalised for importing internal combustion engines under a federal plan to drive greater supply of electric vehicles into the Australian market and cut at least 3 million tonnes of carbon by 2030.

Labor on Wednesday morning announced what it described as Australia’s first national electric vehicle strategy to widen the range of electric vehicles available to consumers and encourage greater use of low-emissions models.

“Transport is the third-largest source of emissions in Australia,” the government said in a statement.

“This Strategy will help cut our emissions by at least 3 million tonnes of carbon by 2030, and over 10 million tonnes to 2035.”

The announcement foreshadows the biggest shakeup in Australia’s car market in decades, and will raise concerns motorists will be forced to pay more for some of the biggest selling, but higher emitting, vehicles currently available.

It would also align Australia with the world’s biggest car markets, including Europe, and comes just days after the US Environmental Protection Agency announced pollution limits that would mean EVs account for up to two-thirds of passenger vehicle sales by 2032.

Labor insisted on Wednesday that the strategy would ultimately pave the way for Australians to buy more efficient, low emissions vehicles.

By introducing a fuel efficiency standard, carmakers will need to ensure the average emissions of all the cars they sell in a given period fall below a certain threshold. That would force manufacturers to prioritise sales of EVs and potentially drive up the cost of high-emissions models that dominate the current sales charts.”

I was a little late to this party. I thought I should RECTIFY that, but when I arrived I found @Wini, @shivrak, @Noddy74 , @mikebrisy and a heap of other Straw folk all Fully CHARGED! The Liquid was running low, down to a trickle, and I only managed to pick up a few loose electrons today before the leakage stopped altogether! :)

Seriously, great work to @Wini and other Strawfolk who had the foresight to get in on Rectifier Technologies so early. I hope you are all doing very nicely.

Since reading Wini’s latest straw and valuation, I have taken a closer look at RFT, and I totally support Wini’s valuation of 10 cps.

I also agree that sales and profits should be sustainable following on from the Tritium contract.

I watched the YouTube video @mikebrisy shared about the RT22 50KW EV Charger Module. It would appear that this is ‘state of the art’ technology in an industry with tremendous tailwinds. Looking at the forecasts, we are on the cusp of a five fold increase in EV charging demand over the next 8 years, with growth compounding at 28% per year (Statista.com). I think RFT has a good foot hold in this market.

See the chart below.

“An electric vehicle charging market forecast by Next Move Strategy Consulting projected the market to reach around 128.13 billion U.S. dollars in 2030. EV charging was worth around 14.5 billion U.S. dollars in 2021, and is expected to have a compound annual growth rate of 28.21 percent between 2022 and 2030”

I have added the probable FY23 results to the Commsec chart below to get some perspective on what this looks like in comparison to historical data. I am particularly excited about the return on equity (ROE). Based on the lower end of Wini’s FY23 NPAT expectations of $7 million, the ROE is likely to be upwards of 53% ($7 million NPAT / $13.3 million equity).

Source: modified from Commsec data

I don’t know if RFT can sustain a ROE of 53%, but if they can you could pay 5 cps and expect a 24% annual return with all profits reinvested into growth (McNivens formula). If you paid Wini’s valuation of 10 cps you could still expect a 16% annual return. However, this all depends on whether RFT can continue to win contacts, grow sales, maintain current margins, and reinvest 100% of their earnings back into the business at a 53% ROE. I don’t think I will be chasing RFT up to 10 cps, but I’ll certainly be on the look out for any loose electrons! :)

Disc: Added IRL today