 TOP IDEAS: Year-after-year the stock price trends higher
and the dividend payout gets bigger. Total investment returns have reached 550%
for shareholders of RDM Corporation (TSX: RC) with more to come.
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.
There is a saying that the only thing guaranteed in life is
death and taxes. Maybe "a higher stock price for shares in RDM Corporation”
should be added to this phrase.
The Investorfile blog considers itself one of the very
first (if not the first) documented opinion providers on the merits of
investing in the shares of RDM Corporation (TSX: RC - $4.55), post its
turnaround. (See: RDM
Corporation: Cash-rich small cap turnaround, offers value and opportunity.) Since that first post on January 2,
2012, the Investorfile blog has written up 10 investment updates on RDM
Corporation over a five-year period. Over the same period the stock price of
the Company has progressively grown higher in value each year, and 2016 should
be no exception.
The key revenue growth driver and cash generator over the
past five years for RDM’s business is its payment processing 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, opening the door for new and improved service offerings to its
commercial customers.
For each ITMS® seat deployed (the data capture point), RDM
earns transaction and license revenues for cheque images to be processed. At
the end of fiscal 2016 the Company had 48,706 ITMS® seats deployed, up 9% from
a year ago. This growth rate of ITMS® seats deployed has been consistent over
the last five years and is expected to continue from existing financial
customers expanding their deployment, first-time bank customers rolling out
RDM’s system in 2017 (new contracts already signed) and from a strong pipeline
of new customer request-for-proposals (RFPs) by US banks and financials.
About 70-75% of RDM’s total revenues are recurring, derived
from its high-margin payment process services for US financial institutions. As
this business continues to grow so does the cash that the Company generates. In
fiscal 2016, RDM Corporation generated US$6,326,000 in cash from
operations compared with US$5,271,000 in 2015 and ended the year
with US$31,047,000 in cash and cash equivalents on its balance sheet
with no debt.
The balance of RDM’s revenues is earned from the sale
of digital imaging products, the front-end hardware data collection
device that scans cheques. Though hardware sales were down in fiscal 2016 the
Company expects its digital imaging products sales to rebound in
fiscal 2017 with new product releases and from new distribution channels. The
increase in hardware sales will add to RDM’s profitability.
Since the Investorfile blog first recommended investing in
RDM’s stock, small cap investors have enjoyed a total return (including
dividends) of 550%. That said, we feel the investments’ returns will continue
to build in 2017.
Here's why:
- RDM’s payment processing business is positioned to continue to
grow in 2017, which will drive more profit growth and therefore a higher stock
value.
- Since introducing a quarterly dividend in January of 2014, RDM has
increased its dividend rate annually. Expect another dividend increase in 2017.
- Still pending is the deployment of RDM’s significant cash holdings
for a potential acquisition(s).
RDM Corporation has approximately 22.6 million shares
outstanding.
Company website: www.rdmcorp.com.
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. |
