TOP IDEAS: Investors take notice of cash cow business. RDM Corporation (TSX: RC) stock up 48%.
"Cha-ching,” "cha-ching” is what RDM shareholders are hearing this year.
As of June 30th, RDM reported cash has grown by another $2 million in fiscal 2012. The Company now has $16.9 million in its bank account against no debt.
My bet is that RDM has accumulated more cash since its last report. Why?
RDM is a provider of payment processing services, a cash cow business, and this cash cow is growing.
RDM has pioneered a payment processing system to capture cheque images for electronic transmission and deposit to financial institutions (Remote Deposit Capture "RDC”), thus eliminating the physical handling of paper cheques.
US banks are increasingly deploying RDC technology and, in particular, RDM's Image and Transaction Management Systems ("ITMS®”) to enable the elimination of many costly cheque processing steps and to facilitate the development of improvements to the bank's back-office operations, improve treasury operations, while at the same time open the door for new and improved service offerings to bank customers.
At each ITMS® site RDM earns reoccurring revenues for cheque images processed for payment. 27,506 ITMS® sites have been deployed, up 32% in the past year the Company has reported.
The growth in ITMS® site deployments is reflected in the Company's profitability.
In fiscal Q3, RDM reported its payment processing revenues grew by 15%. Better yet, the Company earned 65% gross margins on its recurring revenue base, which were 58% of total sales in Q3. Hardware sales of RDM's digital imaging products make up the balance.
The Company reports that the US marketplace continues to show strong demand for its services.
We are not surprised but rather expected RDM's recent growth spurt and profitability (See: Growth returning to cash-rich RDM Corporation).
Nevertheless we are still amazed by the profit potential of this cash cow business.
RDM's share price has traded up 48% since its posting date on Investorfile's Top Ideas for small cap value stocks.
Author's Ownership Position TSX: RC - Long
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