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RDM Corporation is a cash cow stock with more upside to come
Posted by: Gerry Wimmer
5/1/2016
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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 community.


Followers 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 for RDM.

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 before.

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


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

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.
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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.