The headlines here look amazing. However as I look under the hood, it appears the business growth being achieved is not translating to benefit the shareholders. Headline numbers touted comparing PCP:-

• Rev +73%
• NPBT +40%

This is nice, however shares on issue also increased >40% during the half from 104.9m to 149.1m, negating any shareholder benefit of the increased profitability. Showing in the EPS remaining flat at 0.98c. Where is the multiple arbitrage from these bolt on acquisitions? This is appearing more like a case of 1+1=2 than 1+1=3.

Company is forecasting increased EBITDA to $7m+ which is an increase of approx. 50% on FY21. This sounds nice, but if the shares on issue continue to grow at the rate they have been this will be an immaterial increase in EPS.

With the market trending down, I think there will be better opportunities for my capital elsewhere. I will be selling out.

RPM released an investor presentation today. Nothing specifically new to note. They did give a general outlook statement towards the end.

• A further three acquisitions announced in FY22 ytd continue the company's growth strategy
• $8m funding agreement with Collins St Value Fund to provide further funding capability.
• Targeted mergers anticipated during FY22 specifically focused in the repairs and roadside as well as the performance and accessories divisions.
• The board is buoyed by the significant improvement in retail trading conditions post the lockdowns, however, the company remains cautiously optimistic in light of the latest covid-19 (omicron) developments.

With lockdowns and restrictions easing should see trading resume back to normal. The upcoming half year result will be interesting to see just how much the restrictions affected sales. I think the tough trading restrictions may present RPM with greater acquisition opportunity with some smaller businesses struggling, and in the long run be a benefit. However looking forward I am confident the sales momentum the company had will pick back up.

RPM released a Q1 FY22 trading update today.

Headline numbers tout Rev growth of 60% to $15.0m on prior corresponding period in FY21. However, Quarter on quarter this is actually slightly down on Q4 FY21 which was Rev of $15.24m.

Gross profit was up 36.9% on Q1 FY21 to $4.04m. This was actually up quarter on quarter from $3.82m in Q4 FY21. So slightly better margins is a positive.

EBITDA was down 37.9% on Q1 FY21 to $0.92m (Q1 FY21 - $1.48m). This is a bigger drop from Q4 FY21 which was $1.78m EBITDA. The company flags this being mainly due to staff costs, warehousing and stocking expenses for 2 x new distribution centres that became operational on Oct 1. So I assume this to be a one off with EBITDA to bounce back next quarter.

All in all, I am positive on this trading update. With NSW and Victoria in lockdown for pretty much all this trading period it has meant the retail side of all their divisions were material affected. And despite this the top line remained flat QoQ. Company flags this is due to demand in their commercial side with essential services such as transport, mining and agriculture continuing regular trading throughout the lockdowns. This gives me great confidence that the commercial side underpins the company's value and once the retail trading resumes as normal we should see this propel their top line back to good growth numbers.

My valuation was based on the company achieving $70m revenue with flat net margins in FY22. Based off this trading update im confident this can be achieved. Even if revenues are flat QoQ they will achieve $60m. Now that NSW and Victoria are opening up, retail trading should normalize.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02440432-2A1333200?access_token=83ff96335c2d45a094df02a206a39ff4