Stickier subscriptions to see undervalued mining software maker soar

Last year didn’t get off to a good start for mining software company RPMGlobal (RUL). With COVID slowing decision-making for many enterprise software companies and mining executives largely working from home, deals were hard to come by. The first half of the financial year saw only $9.9m worth of subscription software sales.

That makes the full-year number of $47.7m quite an achievement. 
The second half of the financial year delivered subscription software sales of $37.8m, far outstripping the best software sales half in the company’s history.

Neither of those numbers turns up in RPM’s financial statements, though. 

A switch from selling software upfront to offering it to clients on an annual subscription has dampened reported software revenue, leaving it flat for the year.

Steadier, stickier subscriptions

The upfront sugar hit has been replaced with steadier, stickier, and more valuable subscription revenue. Instead of booking the whole $47.7m as revenue in the year, RPM booked only $15.5m. And the company’s smaller mining advisory division saw revenue fall 30%, leaving shareholders with a net loss after tax of $5.5m for the year.

So where does all of this leave RPM?

Next year, reported subscription revenue should almost double, with most of the increase already contracted. Mining advisory, the smaller division by revenue and value, is already bouncing back. With hot mining markets, revenue in the second half increased by 31% over the first half. The eventual resumption of international travel will allow consultants to get back onto mine sites and generate more revenue and profits.

All up, the company is well placed to continue to sell its high-tech, industry-leading software products to a thriving mining industry. 

Costs to rise, sales may slide - but RPM still undervalued

Software sales may not continue at quite the same heated pace as the second half of the year. And costs will rise. But the business should continue to add significant amounts of incremental revenue and profit every year for the foreseeable future.

RPM’s share price is up a lot over the past 12 months. So more of this growth is already factored into the share price. But we continue to see it as undervalued.

CEO Richard Matthews has put in a decade of hard work and software investment getting the business into its current share. The end game is likely a sale, especially given Matthews has form selling software businesses for big sums.

With RPM’s high corporate overhead, any sale will allow an acquirer to reduce costs dramatically. Owning 3.5% of the company, all acquired on-market, its CEO has a big incentive to maximise value if any bidder comes knocking.

Forager Funds

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Alex Shevelev

Senior Analyst

Forager

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The Forager Australian Shares Fund (FOR) is an investor in RPMGlobal (RUL)

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