Rewardle Holdings Limited

RXH Details

Submission of Response to ASX: Rewardle Holdings Limited (ASX: RXH) provides an online customer engagement platform (Rewardle) for medium and small merchant enterprises in Australia. The company’s digital network consists of mobile ordering, payments, data marketing solutions. As of 14 July 2021, the market capitalisation of RXH stood at ~$8.42 million.  On 18 May 2021, RXH responded to the ASX query regarding the company’s $317,000 of net cash outflows from operations and $45,000 cash reserve held as of 31 March 2021. In its response, RXH has confirmed that it is taking staged approach to stability and growth. It also confirmed that its net cash outflows are not indicative of its future cash outflows and prospects.  Besides, the management mentioned that Q3FY21 was a turning point for the firm as per the updated strategy (“Breakeven and Grow”) presentation published on 24 March 2021.

Growth Strategy Updated: On 15 May 2021, RXH announced a strategy update for stabilising growth in 2021. In Phase-1, RXH aims to stabilise merchant SaaS fees to $35,000 per month and achieve breakeven in Q4FY21. In Phase-2, the company plans to recover merchant services fees growth to pre-COVID-19 levels, and phase-3 involves growing fees above the pre-COVID-19 levels.

Key Takeaways from Q3FY21:

• Increase in Merchant SaaS fees: The company generated cash receipts of $87,000 from customers in Q3FY21, up by 24% QoQ. The increase is due to the growth of merchant service fees.
• Working Capital Funds: RXH availed an interest-free, working capital loan of $1.25 million from Executive Chairman Mr Ruwan Weerasooriya in Q3FY21. The loan repayment is flexible depending upon RXH’s capacity to repay.
• Decrease in Cash Balance: RXH held a cash balance of $45,000 in Q3FY21 versus $359,000 in Q2FY21.
• Secured III Party Services Engagements: During the quarter, RXH formalised III party services engagements with SplitPay, Pepper Leaf, and Beanhunter.

Revenue & Loss After Tax Trend from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological advancements which may disrupt its platform usage and require upgrade via investment. RXH is also exposed to the evolving regulations in the financial technology space.    

Outlook: Given the growth of merchant services fees in Q3FY21, the management is optimistic about achieving the merchant fees stabilisation target of $35,000 per month in the June 2021 quarter. The company also believes in being on track for realising $100,000 per month of the target cost base. With the help of current III party services engagements entered in Q3FY21, RXH aims to advance towards realising its III party services revenue target in Q4FY21 and build an opportunity pipeline. 

Stock Recommendation: The stock of RXH gave a positive return of 111.11% in the past six months and a positive return of 137.50% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.004 - $0.059. On a TTM basis, the stock of RXH is trading at EV/Sales multiple of 13.6x higher than the industry (Software & IT Services) median of 6.6x, thus seems overvalued. Considering the current trading levels, significant returns in the past six months and nine months, valuation on a TTM basis, we give a ‘Sell’ rating on the stock at the current market price of $0.019 (on 14 July 2021, 1:05 PM (GMT+10), Sydney, Eastern Australia).

RXH Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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