TOP IDEAS: Recurring payment processing revenues continue
to grow, generating plenty of cash and big gains for small cap investors in RDM Corporation (TSX: RC).
Investorfile's share price accumulation target of $1.35 for
RDM Corporation was reached on November 22, 2012. For the record, we do not
revise share price targets for our Investorfile Top Ideas – Small Cap Value
Stocks. We have positioned our blog to be one of the first providers of a
pragmatic perspective of a small cap company’s stock's potential worth, where
there may be uncovered value that has been largely overlooked by the investment
of the Investorfile blog know that our small cap value pick RDM Corporation
(TSX: RC - $4.09) has delivered stellar investment gains for investors. As of
today, total returns (including dividends) exceed 450% since we first profiled
this Company as a Top Ideas stock (See: RDM
Corporation: Cash-rich small cap turnaround, offers value and opportunity.)
The key growth driver for RDM has been its payment process
services based on Remote Deposit Capture ("RDC”), a deposit-taking mechanism
that uses technology to capture cheque images and data at corporate or merchant
sites for the electronic transmission of these deposits to a financial
institution. US Financials have steadily increased the deployment of RDC technology
and, in particular, RDM’s Image and Transaction Management Systems ("ITMS®”)
software to enable the elimination of many costly cheque processing steps
while, at the same time, open the door for new and improved service offerings
to its commercial customers.
For each ITMS® seat deployed (the data capture point), RDM
earns transaction revenues for cheque images processed. Today the Company has
deployed 46,736 ITMS® seats, up 17% from just a year ago, and the growth is
expected to continue from existing financial customers expanding their
deployment, first-time customers rolling out RDM’s system and from a strong
pipeline of new customer proposals among US banks and financials.
Today over 75% of RDM’s total revenues are recurring,
derived from its payment process services. This revenue stream is up 15% this
year to a current run rate of about US $16 million annually. The payment process
service generates 78% gross margins and is a "cash cow” business for the
Company. Case in point: For the first six months of fiscal 2016, RDM has
generated US $3.38 million in cash from operations up 129% from the prior year.
The Company has over US $29 million in cash and no debt.
The balance of the revenues is earned from the sale of
lower margin (38%) digital imaging products, the front-end hardware
data collection device that scans cheques. Revenue growth from hardware sales
has been minimal over the last few years but still a profitable business segment
Of note, sales of the Company’s payment process services and
digital imaging products are independent from each other.
We last wrote about RDM Corporation in an Investorfile blog post in December 2015 (See: Investorfile
forecast for some of our Top Ideas). In this post we predicted the Company
will have multiple of shareholder value-enhancing events occurring in 2016.
The first such shareholder value-enhancing event was the announcement of a
dividend increase earlier this year. The dividend payout was increased by 33%.
Still pending from our prediction is the deployment RDM’s
cash resources for an acquisition(s). Interesting enough, the Company’s CEO has
recently acknowledged (on an investor conference call) that the valuation levels
for potential acquisition targets are now more compelling to RDM than ever
To date, small cap investors have enjoyed big investment
gains by owning shares of RDM due to the growth of the Company’s payment
processing business. But there is still much more upside to come and an
acquisition in 2016 maybe the very reason why.
RDM has approximately 22.5 million shares outstanding.
Company website: www.rdmcorp.com.
Investorfile blog posts: RDM Corporation
Author's Ownership Position: TSX: RC - Yes
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author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
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solicitation to buy or sell securities. Readers are advised to conduct their
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Investorfile.com is not engaged in an investor relations agreement with RDM
Corporation nor has it received any compensation from RDM Corporation for the
preparation or distribution of this article.
The author of this article has acquired and may trade shares of RDM Corporation
through open market transactions and for investment purposes only.