RFL - Rubik Financial

[herzy]

RFL hit an all time high of 36c today and closed just off its peak at 35.5c.

RFL has provided spectacular returns since its identification at the 5c range.

The SP rise has been steady and consistent, rather than a meteoric rise - followed by an equally spectacular crash.

There is still much upside potential to RFL, with the companies having signed contracts for products yet to be known publicly.

Recent acquisitions look to be providing RFL the ability to approach small, medium & large financial institutions with a multi-faceted package of banking/technology software products.

RFL has stated ambitions of being in the ASX300 within a 3 year period. This would require, at current share issuance levels, a share price of $3.

What are the catalysts for such a scenario? A contract with one of Australia's big 4 banks (possibly, but less likely a major international financial institution) or a rapidly accelarating profit - leading to removal of current debt and an increasing cash reserve.

Speaking hypothetically, if memory serves me correctly RFL to count CBA as one of their cliental with a small product line - this could provide the foot in the door for a larger system (more earnings accreditive) to be pitched to CBA.

Would love to hear others' thoughts on my musings, or their own opinions on where major share price increases coulod be realised from.....

Agree with the post as it was then. I don't think this sharp rise will last, but that's a pure guess. Longer term, I find this a very difficult company to predict. I accept that their existing clients will be happy with increased offerings, and new clients will come. How much will they spend for extra services? How many will come later? Can they earn $60 mill a year to justify this? Ambitious, but perhaps management know more than I do about the potential. They said they're aiming for 40% EBITDA increase, which is a big claim...

 

[springhill]

Agree with the post as it was then. I don't think this sharp rise will last, but that's a pure guess. Longer term, I find this a very difficult company to predict. I accept that their existing clients will be happy with increased offerings, and new clients will come. How much will they spend for extra services? How many will come later? Can they earn $60 mill a year to justify this? Ambitious, but perhaps management know more than I do about the potential. They said they're aiming for 40% EBITDA increase, which is a big claim...

All pertinent questions and without the luxury of a crystal ball, ones that remain unanswered.

What can be said is that managements track record of acquisitions and the terms of them have been well received by the market to date.

RFL show the ability to pay off debt quickly.

Forward projections from the presentation show that the 2 mortgage platforms will complete their strategic offerings to current/new clientele right up until 2016.

The terms will obviously dictate the need for a cap raising or not, but RFL have shown an inclination not to unnecessarily dilute & proceed in that manner despite a share price increase from 5 to 50c.
Not many ASX listed companies would resist the urge to do so.

However, if the acquisitions are on favourable terms and RFL would prefer to knock the majority of the debt on the head, would that be such a bad thing?
Any dilution could be offset by potential fast tracked dividend payments.

Food for thought, or to throw in the bin....

 

[springhill]

For those not up to speed on why RFL has ticked up to the 50c mark yesterday, here are the 3 latest announcements for your convenience.

Investor Presentation
http://www.asx.com.au/asxpdf/20140331/pdf/42nqh05q4qm5h4.pdf

Rubik Business Update
http://www.asx.com.au/asxpdf/20140328/pdf/42np5lq86msrp7.pdf

Rubik Completes Acquisition
http://www.asx.com.au/asxpdf/20140328/pdf/42np1px69xfw4j.pdf

Considering the 12% rise yesterday, I was curious as to how today's trading would pan out.

Those taking profits/trading were unable to overwhelm buyers and I consider today's action of a half cent fall with volume of over 1.1m traded as a success.

Any thoughts on when/if RFL may become a takeover target? Possibly after the addition of the 2 prospective mortgage platforms?

Just opening this up for consideration.

 

[VSntchr]

Any thoughts on when/if RFL may become a takeover target? Possibly after the addition of the 2 prospective mortgage platforms?

Just opening this up for consideration.

I agree about yesterday's trading, I was thinking how resilient it was to hold its ground after such a strong run the day before.

As for a takeover, can you think of the potential suitors? I really doubt that Iress could do it, ACCC would surely block that with XPLAN and COIN making up a very large majority of the fin planning software market.

 

[herzy]

All pertinent questions and without the luxury of a crystal ball, ones that remain unanswered.


RFL show the ability to pay off debt quickly.

Forward projections from the presentation show that the 2 mortgage platforms will complete their strategic offerings to current/new clientele right up until 2016.

The terms will obviously dictate the need for a cap raising or not, but RFL have shown an inclination not to unnecessarily dilute & proceed in that manner despite a share price increase from 5 to 50c.
Not many ASX listed companies would resist the urge to do so.

However, if the acquisitions are on favourable terms and RFL would prefer to knock the majority of the debt on the head, would that be such a bad thing?
Any dilution could be offset by potential fast tracked dividend payments.

Food for thought, or to throw in the bin....

Good work Springhill! Cap raising coming up...

 

[springhill]

Good work Springhill! Cap raising coming up...

I am thinking that an announcement regarding the potential acquisition of the mortgage platforms may not be far behind this cap raising announcement.

If this pans out along similar parallels as I am thinking out aloud, then as a shareholder I would rather capital was raised in this fashion than extra debt taken aboard.

However, pure speculation at this point and a lot more information to be released before a successful pathway forward is defined

 

[springhill]

Rubik Share Purchase Plan Results

Rubik Financial Limited (ASX: RFL) is pleased to advise that its share purchase plan (SPP) has received strong support from its retail shareholders. Applications of $10.8million were received from 963 shareholders.

As a result of the high level of SPP demand, the Rubik board of directors has decided to increase the maximum amount raised to $8million (from the previously advised $3million). This enables existing shareholders to more fully and equitably participate whilst modestly impacting the overall capital raised. The total company capital raising will now increase from $28million to $33million, the additional $5million representing 11,363,637 additional shares to be issued (or 3% of the expanded shares on issue).

The $8million issue limit will result in applications being scaled back as follows;
● Applications for amounts up to $5,000 will be allotted in full
● Application amounts in excess of $5,000 will be scaled back by 44.5%.
Therefore all applications will receive full allocation up to $5,000 with only the amount in excess of $5,000 being scaled back.

Allotment and issue of share purchase plan shares is scheduled for 22 May, 2014.

Rubik's Chairman, Craig Coleman, said “We are extremely pleased with the high level of shareholder participation in our equity raising. Retail shareholders have previously given the Board feedback on their desire to have an equitable participation in equity raisings. Accordingly we have increased the SPP raising amount to reduce the level of scale back necessary. The overall scale back level of 44.5% is consistent with the 46% institutional placement scale back."
Rubik's Chief Executive Officer, Niek Hoogenhout, said "The executive team are grateful of the support shown by institutions and retail shareholders alike. The $5million increase in the SPP raising amount will initially be applied to retirement of debt and will provide Rubik with greater financial flexibility with respect to future acquisition funding or associated earn out payments. We look forward to rewarding the support shown by shareholders."

 

[westboy]

Just on the debt position of the company , It has very high recurring revenues and debt is cheap ATM so I hope the next acquisition has a bit of modest leverage in it. This adds to the EPS and ROE figures and as long as it's modest, wont add significantly to the risks IMHO

 

[Linkes]

following

 

[Miner]

any current follower of RFL please share how come market flogged RFL after such an oustanding result published ?
How the recent SPP holders being treated by RFL and they are treating RFL after such a drastic fall since the SPP was closed ?

Cheers

 

[skc]

any current follower of RFL please share how come market flogged RFL after such an oustanding result published ?

I haven't follow RFL for some time, but it looks like it made a loss of ~$300k before significant items? The headline figure of $6.35m is mostly due to the recognition of DTA (deferred tax assets). Yes that has real value in the future but only to the extent that RFL make an operating profit.

It made a pretty significant acquisition in June so none of those benefits have come through yet. They paid $22.4m at 5.9x EBITDA so you'd expect that to add ~$3.8m EBITDA for FY15. RFL claimed that their own underlying EBITDA was $8.2m, but that excluded ~$4.5-5m of expensed and capitalised R&D, plus ~$4m in investment amortisation (I don't know what that entails). There isn't enough history to know what is RFL's "sustaining" R&D spend so the true underlying FY15 EBITDA could be as low as $7-8m (again ignoring the investment amortisation).

I have no idea how to value this company but at current market cap of ~$130m, the valuation has priced in some pretty good things in the coming years. If they don't come to bear at the implied expectation the share price could go anywhere.

P.S. I've only spent 10 minutes on this so others who are more knowledgeable will definitely give better answers.

 

[Miner]

I haven't follow RFL for some time, but it looks like it made a loss of ~$300k before significant items? The headline figure of $6.35m is mostly due to the recognition of DTA (deferred tax assets). Yes that has real value in the future but only to the extent that RFL make an operating profit.

It made a pretty significant acquisition in June so none of those benefits have come through yet. They paid $22.4m at 5.9x EBITDA so you'd expect that to add ~$3.8m EBITDA for FY15. RFL claimed that their own underlying EBITDA was $8.2m, but that excluded ~$4.5-5m of expensed and capitalised R&D, plus ~$4m in investment amortisation (I don't know what that entails). There isn't enough history to know what is RFL's "sustaining" R&D spend so the true underlying FY15 EBITDA could be as low as $7-8m (again ignoring the investment amortisation).

I have no idea how to value this company but at current market cap of ~$130m, the valuation has priced in some pretty good things in the coming years. If they don't come to bear at the implied expectation the share price could go anywhere.

P.S. I've only spent 10 minutes on this so others who are more knowledgeable will definitely give better answers.

Dear SKC

Many thanks for your thought provoking note and it is encouraging.
RFL shed some feathers today only to fly soon and I am waiting.
I also got a PM from a learned poster on RFL. I thank him very much too
With a bit dip RFL probably setting itself and I will watch actively.
BTW your ten minutes calculation quality and worth is more than my couple of hours efforts to reach onto same conclusion. So thanks a lot .

 

[Rinsewind]

I thought I read somewhere (here? on another thread) that Rubik owned 20 % of FINZOFT FIN.NZX. Does anyone know if that is true. FIN.NZX up 41% today. DISC. Holding. If this is true I may pick up a few more!

 

[Miner]

I thought I read somewhere (here? on another thread) that Rubik owned 20 % of FINZOFT FIN.NZX. Does anyone know if that is true. FIN.NZX up 41% today. DISC. Holding. If this is true I may pick up a few more!

Just Googled to get an answer of your query.
Whereas FIN went up by 41 % but the same search says there is no major holder for FIN.NZX

http://finance.yahoo.com/q/mh?s=fin.nz&ql=1

 

[Rinsewind]

No worries. Found it. 'Shares in listed entity at 30 June 2014 relate to Finzsoft Solutions Limited (NZSX: FIN). (Value = $1,115,000 @ 0.50). 1 Dec 14 - now 3.98. Not sure what this means though? ....for shares in listed entity at fair value, an increase of 1 percent in the share price as at the reporting date would have increased other comprehensive income by $11,000 (2013: $6,000). A decrease of 1 percent in the share price would have decreased other comprehensive income by the same amount. http://clients2.weblink.com.au/clients/Rubik/article.asp?asx=RFL&view=6693018 P72.

 

[Rinsewind]

Sorry Miner. Overlooked your post. Thanks for the effort. Still fairly new to this so still not all that good at doing my own research.

 

[Rinsewind]

Sorry that should be page 70.

 

[Rinsewind]

Can any one translate this into newbie-speak. Thanks.

"For the above financial assets, fair value movements are recognised in other comprehensive income through the
fair value reserve in equity. Shares in listed entity at 30 June 2014 relate to Finzsoft Solutions Limited (NZSX: FIN). The remaining equityinvestment relates to CCK Financial Solutions Ltd.

For shares in listed entity at fair value, an increase of 1 percent in the share price as at the reporting date would
have increased other comprehensive income by $11,000 (2013: $6,000). A decrease of 1 percent in the share
price would have decreased other comprehensive income by the same amount."

Does this mean that changes in Share Price for NZSX:FIN will be reported as revenue - other comprehensive income?

 

[Ves]

Does this mean that changes in Share Price for NZSX:FIN will be reported as revenue - other comprehensive income?

If you go to the ASX website and open up the 2014 Preliminary Final Report & Appendix 4E and go to page 13 of the PDF there will be a statement of profit and loss.

There is a line item in bold that says something like the Profit after income tax benefit for the year attributable to owners of RFL. It's 6,346.

Directly under this is a bolded line item that says Other Comprehensive Income. In this section is the Net change in fair value of investments 524.

There is a reserves line item under Equity on the balance sheet too where any movement is reflected year on year.

If you want to read further the relevant notes to the accounts are 12 and 23.

Be careful not to mix up any Other Comprehensive Income with operating profits / cash flow if you wish to value the business.

 

[Rinsewind]

Thanks for that - much appreciated. Makes more sense now.