RDM Corp. is a turnaround story with upside, says PI’s Sangha

Clients like Capital Bank Financial were part of the $600-billion in payments RDM Corp. processed last year. RDM Corp (TSX:RC) is a turnaround story that investors should be paying attention to, says PI analyst Pardeep Sangha.

Yesterday, Sangha initiated coverage of RDM with a “Buy” rating and a one-year target of $4.00, implying a return of 42.8% based on Tuesday’s closing price of $2.80.

Sangha says that after years of losses and declining revenue, the new management team that was put in place in 2011 is beginning to the right the ship at RDM. He points to the EBITDA reversal between fiscal 2010 and 2013; the company has turned a $1.6-million loss into $3.6-million in earnings in the period.

The PI analyst says that while the world is increasingly moving to digital processing, there are still millions of cheques written every day, and there is a “significant market need” for an electronic solution. RDM, which provides cheque scanners and payment processing solutions to remotely capture and remit cheques electronically is a clear leader in the space, having processed $600-billion in payments for 30,000 users last year. He notes that many institutions still pay high courier fees to transport paper cheques.

Remote Deposit Capture, which is RDM’s specialty, also introduces efficiencies into the banking system by reducing the amount of time a cheque takes to clear, from 3-7 days to one or two days, he notes.

Sangha is forecasting EBITDA growth of 25% in fiscal 2014 and 21% in 2015. This forecast, he says, is based on organic revenue growth of 10% in 2014 and 9% in 2015, and does not include the potential of an increased top or bottom line from acquisitions.

At press time shares of RDM Corp. were down .7% to $2.85.

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