Baby Giants podcast did a section on RUL.

I took away the following observations:

Bull

1. Disclosed as held by everyone except @Strawman (maybe he rushed out and bought afterwards! hahaha)
2. Ongoing software subscription revenue growth is "hidden" by the traditional business model of licenses and consultancy work.
3. Likes to operate around break-even at this stage in the business change to SaaS, vs high revenue or high losses with associated offsets. Figure 1.
4. CEO chooses not to convert existing customers from licence to subscription for "easy wins". Makes his sales team go after new sales. Converting the existing customers would result in approx +$50mil ARR.
5. ARR is growing at ~70% per FY.
6. Propose a target of 30% growth per year for DCF models.
7. Fair value at today's date is "somewhere above $2".
8. RUL is likely to have pricing power as it becomes heavily integrated in the business, and seeks to be a smarter/more agile incumbent (vs its opposition).

Figure 1.

Bear

1. Integration risk - due to high number of recent acquisitions. If RUL finds a small software company that has a value-add 'module' they buy it rather than develop in-house.
2. Technical risk - These acquitions come with code integration requirements also. If the code bases are different this can impact the quality of the software performance. (Bull: CTO's role is to finalise integrations by Dec 2022).
3. CEO risk - Richard Mathews has overseen the transition from license to subscription.
4. Revenue timing risk. ~70% of revenues are paid by customers in 2H (Jan - Jun period). This can make reports lumpy and Mr Market confused/fearful.
5. TAM is hard to define. Perhaps it is a narrow but deep. Fewer customers, but customers buy big!

Disc. I own IRL and have been seeking the right opportunity to top up.

As per yesterdays presentation:

What stood out to me, besides numbers I am happy with, was RUL’s focus on ESG within the report.

ESG or Environmental, Social and Governance reporting currently has no legislated or regulatory reporting guidelines or formats, however there is a growing consensus, that is creating a social licence towards ESG. Just look at that dude who sue’d his super fund!

RUL mentioned ESG in the report no less than 16x!!! 16x!!!

Part of this is obvious, RUL is in the mining industry, and therefore it’s a no-brain-required assessment to mention ESG as mining is “dirty”, or bad for the E in ESG. Three things stood out to me:

1.      They are choosing to report ESG before it is mandatory, thus making their own format and controlling their narrative – I think much of the report is written with an ESG lens or bias. This narrative helps guide investors, but also customers! If I’m a miner and I use an ESG-friendly business, then I the miner can claim I am ESG friendly. Tricksy RUL!

2.      RUL sold a subsidiary, GeoGAS to make itself cleaner and greener, and to demonstrate its commitment to ESG – proof to its narrative of words – as GeoGAS is solely a coal business.

3.      RUL is still considered a small cap ($300M to $2B) with a market cap of $420M, however I think I read comments in the presentation to the effect of “we are selling GeoGAS, to improve our ESG, and then institutions will be able to invest more in RUL as it will meet their ESG mandate requirements”.