RDM (TSX:RC) is undervalued, says M Partners analyst Manish Grigo
On Thursday, RDM released its Q1, 2015 results. The company earned (U.S.) $1.12-million on revenue of $5.84-million.
“During the past quarter, we increased both our recurring revenue and digital imaging revenue over the prior year, resulting in strong margin improvement and adjusted EBITDA growing 30 per cent to $1,376,” said CEO Randy Fowlie. “This translated into strong cash flow generation, allowing the board to increase our annual dividend by 50 per cent. We continue to see evidence of strong market acceptance, and our sales pipeline remains strong.”
Grigo says RDM’s topline was in line with expectations, but the company’s adjusted EBITDA number of $1.4-million surpassed his target of $1.2-million. He points the finger at gross margin expansion in the company’s hardware segment, where margins of 42% were much higher than the 30% he had modeled.
“We believe RDM’s service offering represents the future of banking with the market is poised to grow with adoption of electronic deposits,” said Grigo. “Currently less than 20% of 21 billion cheques are deposited electronically and this market is in its early stages.”
In a research update to clients Friday, Grigo maintained his “Buy” rating, but raised his one year target price from $3.75 to $4.50, implying a return of 38.5% at the time of publication.