Why this ASX small cap has rocketed 15% this week

Here's why the RPMGlobal Holdings Ltd (ASX: RUL) share price is rocketing to new heights ahead of the ASX small cap's 1H20 results.

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The RPMGlobal Holdings Ltd (ASX: RUL) share price is rocketing to new heights ahead of the ASX small cap's first-half FY20 earnings release.

With RPMGlobal shares surging 15.42% so far this week, the company's market capitalisation currently sits at $270.53 million.

So, what is there to know about this ASX small cap share and why is its share price on the move?

What does RPMGlobal do?

Formerly known as RungePincockMinarco, RPMGlobal is a mining software and consultancy business.

The company's major operations are the development and sale of mining software (a high-quality revenue stream), advisory (experts in mine design, takeovers and planning), and testing and compliance.

Why is the RPMGlobal share price rising?

Yesterday, RPM released a trading update to the ASX in regard to growth in its total contracted value (TCV) and annualised recurring revenue (ARR).

In the release, the company announced that the TCV of new committed software subscriptions signed in FY20 has reached $21.5 million. Additionally, its ARR from software subscriptions currently stands at $10.7 million per annum.

Yesterday's update, which pushed the RPMGlobal share price 5.1% higher, follows a previous announcement on 22 January 2020 which sent shares surging 18.7% on the day.

The January announcement was in a similar vein to that of yesterday, with RPM reporting a $7.3 million uplift in TCV to $17.7 million and $2 million of additional ARR from the two-month period since 19 November 2019.

Tick of approval

Prior to yesterday's rise, however, shares of the mining software company were already moving higher. Tuesday saw a 5.6% gain, which coincided with a change in substantial holding ASX release.

In an announcement released after trading hours on Monday, listed investment trust (LIT) Forager Australian Shares Fund (ASX: FOR) provided notice that it had recently accumulated 2,380,181 RPMGlobal shares for total consideration of $2,566,360. This implies an average purchase price of $1.078 per share over a 3-week period that began on 22 January, the same day that RPM provided the aforementioned subscription update.

This recent purchase was in addition to the 12,299,223 RPMGlobal shares already owned by Forager Funds.

Since this ASX LIT aims to invest in undervalued businesses, its recent accumulation of RPMGlobal shares may have given those questioning whether shares were overrun some added confidence.

Investors starting to take notice

In any case, this week's share price rise comes as RPMGlobal shares continue to gain momentum following the release of its FY19 results. Since the release in August 2019, the RPMGlobal share price has risen nearly 125% to reach yesterday's closing price of $1.235.

Under the leadership of CEO Richard Mathews, an enterprise software company veteran, RPM is now in the final stages of its transition from a business primarily focused on mining consultancy to a company offering a full-stack suite of software products.

After roughly 6 years of considerable research and development spend, RPM now offers mining software across 10 commodity groups (e.g. coal, iron ore, etc.) for a range of mining methods (e.g. under and above ground).

The company has also been transitioning away from upfront perpetual license revenue in favour of selling its software on a recurring subscription model.

All this has meant that RPM's financials have taken a hit, with lumpy and low-margin advisory revenue hiding the potential of what could soon become a sticky software subscription business.

Now that RPM is continuing to book in subscription growth, all the while keeping the market cognisant of its progress, investors seem to be starting to take notice and rerating shares accordingly.

Foolish takeaway

Yesterday's TCV and ARR update marked another milestone in RPM's early journey into the software-as-a-service space.

RPM advised that its next market update will occur when TCV exceeds the $25 million mark. In the meantime, the company is set to release its half-year FY20 results to the ASX early next week.

Motley Fool contributor Cathryn Goh owns shares of RungePincockMinarco Limited. The Motley Fool Australia has recommended RungePincockMinarco Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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