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

29-May-2020:  FY20 Trading Update

Trading results for both April and May [month-to-date] have surpassed expectations and while market volatility still exists, it has certainly diminished. The RPM board is now in a position to make short term commentary with reasonable certainty.  
 
RPM’s Tyre and Wheel Division has exceeded our forecasts and is surpassing the overall performance of the tyre and wheel industry, mainly driven by increased demand for TBR and Commercial Tyres and the inability of our competitors to maintain consistent supply.  RPM is also pleased to report that our recent expansion in this sector is proving successful. 
 
RPM’s Manufacturing Businesses have also seen improved sales figures driven in part by strong demand for components in repairs and roadside, as well as performance and accessories. 
 
It should be noted that as predicted, our retail businesses have experienced significantly reduced turnover, but Job Keeper and the cash flow boost have ensured that these businesses remain viable in this quarter. Cost reductions and reduced hours have resulted in improved performances across the Group. 
 
The Group’s primary strategy remains on course, with growth [both acquisitional and organic] at the forefront.  Now that management has resolved the initial challenges resulting from the onset of Covid-19, it can refocus and continue to pursue acquisitional opportunities.  While there may be delays, the board is confident that it will be able to execute these transactions. 
 
Further updates on the impact of the COVID-19 virus will be provided as appropriate. 

RPM is focused on the health, well-being and safety of both our staff and customers and continue to provide the appropriate sanitation measures and social distancing regimen. 

About RPM: RPM Automotive Group Limited is a leading player in the Australian Automotive Aftermarket comprising a number of businesses involved in: importing, wholesaling and retailing of tyres, mechanical repairs, motorsport apparel and safety equipment, niche manufacturing and a roadside assistance service for the transport industry. RPM owns brands, such as: RPM Racewear, Carline, Genie, Air Anywhere, Formula Off-Road.