RPMGlobal to buyback 11.5m shares: Annual recurring revenue is growing

RPMGlobal Holdings (ASX: RUL) was up 2.26% this afternoon after the smallcap mining tech business flagged plans for a 11.5m share buyback.

To the uninitiated, RPMGlobal is a global provider and developer of mining software solutions, advisory services and professional development to the mining industry, which listed on the ASX in May 2008.

Major clients include Rio Tinto Limited (ASX: RIO), BHP Group Ltd (ASX: BHP),South32 Ltd (ASX: S32) and Fortescue Metals Group Limited (ASX: FMG).

Sound use of capital

After taking into consideration the current and historical share price of the company, plus the $36.9m available cash as at the end of April, the board deemed the buy-back a sound use of available capital.

The company plans to acquire up to 5% of the company’s current shares on issue (approximately 11,450,000 shares) under the Buy-back and based on the closing price of $1.62 on May 26, the cash cost to the company is expected to be around $18.6m.

The earliest the company will be permitted to buy-back its shares is 14 June 2022. The period will remain open until 13 June 2023 unless closed earlier by the RPM Board at its discretion.

Expanded software offering

Coinciding with today’s announced buyback was an upgrade to the company’s total contracted value (TCV) derived from software licence sales year-to-date to $43.3m, an increase of $2.8m its previous update on May 10.

As a growth stock, RPMGlobal has been expanding its software offering to clients via acquisitions.

While up 12.93% over 12 months, calendar year 2022 has not been kind to the stock, with the share price – dragged lower by the technology sector rout – down around -25% year to date.

Improving fundamentals

But despite the share price carnage, the company key final indictors appear to be improving.

The company’s annual recurring revenue (ARR) is growing, with customers now on software subscriptions currently sitting at $27.9m.

Then there's the FY22 half-year operating profit which was up $3.9m to $2.1m, while net profit after tax (NPAT) increased $8.3m to $1.9m.

On 31 December 2021, the company had net assets of $65.8m (June 2021: $61.4m), including cash of $32.4m (June 2021: $44.6m) and no debt.

Looking forward, the company expects a ‘real’ lift in software sales once mining countries open their borders and upgrade to cloud solutions.

Consensus on RPMGlobal is Strong Buy.

Based on Morningstar’s fair value of $2.15, the stock appears to be undervalued.

The last three months for RPMGobal shareholders has been a rollercoaster.