The share price of small cap ASX software company RPMGlobal Holdings Ltd (ASX: RUL) has been pretty volatile so far in 2020. After climbing to an all-time high of $1.25 in February, the RPMGlobal share price was savaged during the mass selloffs that occurred at the height of the coronavirus panic in March.
In the space of just a few weeks, more than 50% was wiped off its market cap, and it plummeted to a low of just $0.62. Since then, however, strong underlying results have pushed the company’s share price back up close to 60% to $1.00 as at the time of writing.
RPMGlobal has a long history of providing consulting and advisory services to the Australian mining sector. However, it has also branched out into software development through its Enterprise Planning Framework platform. The software platform helps mining industry customers manage planning and scheduling, maintenance and execution, and simulation and costs at their mine sites. RPMGlobal claims that its platform is the only one currently offered in the mining industry that gives users control over these three key processes, which gives it a strong advantage over its competitors.
In an update to the market released at the beginning of July, RPMGlobal reported some preliminary results for FY20. The company stated that it expected total software subscription contracted value for FY20 to be $34.5 million, more than tripling FY19’s result. It also confirmed annualised recurring revenues from software subscriptions were expected to reach $12.7 million.
A high proportion of recurring revenues is an especially good sign for RPMGlobal as it expands its software business. Other successful ASX software companies like Altium Limited (ASX:ALU), WiseTech Global Limited (ASX:WTC) and ELMO Software Ltd (ASX:ELO) also have high rates of recurring revenues from subscription-based services.
High rates of recurring revenues are so important – especially in these times of economic uncertainty – because they provide a more dependable income stream. Less volatility in earnings means that company management can create more accurate budgets and forecasts, allowing them to plan better for the future.
It also makes a company more resilient during a downturn. Having a more accurate idea about how much revenue to expect gives a company confidence in its abilities to cover its expenses. In short, high levels of recurring revenues help to reduce risk.
Is the RPMGlobal share price a buy?
Despite the recoveries made since March, the RPMGlobal share price is still well short of its February highs and could offer good value to new investors. In fact, its share price has almost flatlined since mid-April, seemingly unable to push beyond the psychological $1 barrier. This may mean it is still flying under the radar for many investors, even as its underlying fundamentals continue to improve.
This definitely makes RPMGlobal one to add to your watchlists. This is especially true as states like Western Australia, with a local economy heavily reliant on mining, continue to ease their coronavirus restrictions.
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Rhys Brock owns shares of Altium, Elmo Software, and WiseTech Global. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium and RungePincockMinarco Limited. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended Elmo Software and 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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